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| Freddie Mac voluntarily
limits mortgage growth |
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One
of the top mortgage companies in the country, Freddie
Mac, has voluntarily limited their mortgage growth. This
comes just after the other major mortgage conglomerate,
Fannie Mae, agreed to cap their growth. Freddie Mac and
Fannie Mae combine for about 40 percent of residential
mortgages in the U.S.
The Wall Street Journal columnist, Damian Paletta,
reports how this will affect the market in the August
2, 2006 article, “Freddie Mac Will Voluntarily Cap
Yearly Mortgage-Portfolio Growth.”
“Freddie Mac voluntarily agreed to limit the growth
of its $710 billion of mortgage holdings to no more than
2% a year, after requests from its top regulator.”
In June 2006, Fannie Mae capped its mortgage profit at
$727 billion. Fannie Mae’s cap is more restrictive
though, since it was not voluntary.
The limits or “caps” are the first for both
companies.
Industry experts report that the market should not be
immediately affected by the mortgage caps since mortgage
loans are down due to the slowing housing market.
"‘The mortgage
market is fine for right now and at least the balance
of this year,’ said Jim Vogel, an analyst at FTN
Financial Capital Markets in Memphis, Tenn. ‘But
investors might grow concerned if rates fell and Fannie
and Freddie aren't there to handle
large refinancing volume. The other potential concern
is if bank buying activity begins to diminish.’"
Freddie Mac report that the limit was in effect beginning
July 1, 2006 and would not be lifted until they “resume
timely reporting of quarterly results.”
Meanwhile, Fannie Mae has been struggling to recover from
an accounting scandal that tarnished their image in 2004.
The scandal forced Fannie Mae to change most of its senior
management personnel.
As a result of Fannie Mae’s scandal, both Fannie
Mae and Freddie Mac were forced to adopt guidelines from
the Office of Federal Housing Enterprise Oversight, or
Ofheo.
“James Lockhart, director of Ofheo, welcomed Freddie
Mac's decision, saying it would help the company to focus
on fixing lapses in its accounting and internal controls.”
As of recently, Freddie Mac has been experiencing gradual
progress. While Fannie Mae was forced to limit its growth,
Freddie Mac’s “voluntary” limit may
demonstrate their new control over the mortgage industry.
“While Fannie Mae's mortgage portfolio has contracted
since its $913 billion high in October 2004, Freddie Mac's
portfolio has continued to grow. Legislation to tighten
regulation of the two companies has bogged down in Congress
amid discord over how much power the regulator should
have to limit their mortgage holdings.”
As long as the limits are eventually raised within the
next couple of years, the market should not be affected. |
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