Mortgage News

Freddie Mac finds stability in this week's mortgage rates

October 3, 2004
BY LEIGH STROPE
ASSOCIATED PRESS

Mortgage rates inched up last week, but they remained well below the year-high levels set during the spring.

Freddie Mac, in its weekly survey released Thursday, reported that rates on 30-year, fixed-rate mortgages increased to 5.72 percent for the week ending Sept. 30. That was up from 5.70 percent the previous week.

Rates on 30-year mortgages hit a high this year of 6.34 percent the week of May 13. Rates have slowly drifted downward as economic activity cooled in the late spring and early summer and inflation fears receded.

For 15-year, fixed-rate mortgages, a popular option for refinancing, rates rose to 5.12 percent, up from 5.10 percent last week.

Rates on one-year adjustable rate mortgages dipped to 3.97 percent, compared with 4 percent the previous week.

Mortgage rates have remained restrained even as the Federal Reserve has raised a key short-term interest rate. Two weeks ago, the Fed bumped up the target for its federal funds rate to 1.75 percent, marking the third rate increase since June. The funds rate is the interest banks charge each other on overnight loans and is the Fed's main tool for influencing economic activity.

Economists say the Fed needs to slowly raise the funds rate from extraordinarily low levels to more normal levels to protect against inflation becoming a problem in the future.

"Low mortgage rates continue to keep the housing market vibrant," said Frank Nothaft, Freddie Mac's chief economist. He expects rates on 30-year, fixed-rate mortgages to remain below 6 percent for the rest of the year.

The nationwide averages for mortgage rates do not include add-on fees known as points. All three mortgage categories carried a 0.6 point fee.

A year ago, rates on 30-year mortgages averaged 5.98 percent, with 15-year mortgages at 5.30 percent and one-year ARMs at 3.77 percent.



Congress to grill Fannie Mae execs on accounting

Tue Oct 5, 2004
By Mark Felsenthal

WASHINGTON, Oct 5 (Reuters) - Managers of mortgage finance giant Fannie Mae will defend themselves before Congress on Wednesday against government findings that say they broke accounting rules to deliver steady earnings growth quarter after quarter.

"This is a command performance -- all eyes and ears will be tuned to hear what they have to say in defense of their accounting practices," said a bank industry official who spoke on condition of anonymity.

Fannie Mae Chief Executive Franklin Raines, Chief Financial Officer Timothy Howard and board member Ann Korologos, as well as the head of their federal regulatory office, Armando Falcon, are due to appear before a House of Representatives Financial Services panel.

Falcon's agency, the Office of Federal Housing Enterprise Oversight, reviewed the company's books in depth after an accounting scandal at mortgage finance sibling Freddie Mac in 2003.

Investigators said they unearthed a "cookie jar" reserve Fannie Mae used to hide earnings swings from investors.

The regulator also said executives failed to record a $200 million expense so they could meet earnings targets and reap million-dollar bonuses.

Falcon's office said the company's managers misapplied and ignored accounting rules to meet analysts' expectations. Those actions call into question the company's financial reporting, and perhaps even its capital adequacy, the regulator said.

The Securities and Exchange Commission and the Department of Justice are also probing Fannie Mae's bookkeeping.

Congressional, Bush administration and financial services industry officials have criticized Fannie Mae and Freddie Mac for several years. Critics charge the companies, which buy mortgages from lenders and package them as securities or hold them in their portfolios, pose risks to the U.S. financial system as a result of their size and rapid growth.

NO GOVERNMENT GUARANTEE ON DEBT

The companies owned or had guaranteed 46 percent of the $7.8 trillion in U.S. residential mortgage debt outstanding. Their debt -- worth around $1.5 trillion -- is held by investors around the world.

Critics say the companies exploit investors' belief the government would bail them out in a crisis, but fail to lead in helping low-income home buyers.

The government does not guarantee Fannie Mae or Freddie Mac's debt, but investors interpret the companies' congressional charters as a sign of sheltered status.

Falcon's office itself is under fire for failing to more quickly detect Freddie Mac's accounting troubles, which led to a $5 billion earnings restatement, the replacement of five senior executives and a $125 million civil penalty.

The companies have backing in Congress and in the mortgage banking, home building and real estate industries.

Supporters, including many affordable housing advocates, say the companies make long-term, fixed rate mortgages cheap and readily available and are the foundation of the strong U.S. housing system.

But the accounting controversies first at Freddie Mac, and now at Fannie Mae, introduced questions about management integrity to the debate and raised fresh doubt about risk.

The two companies will almost certainly face initiatives to tighten their oversight rules when Congress comes back to Washington after November elections, observers said.

"This gives new life to setting up a new regulatory structure for these companies," said former Bush administration Treasury Department Sheila Bair.

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