Greenspan, Snow Set to Testify in Fannie, Freddie Hearings

Legislation to tighten the reins on Freddie Mac and Fannie Mae are making their way through Congress, with three hearings set for this week.

The mortgage giants, both chartered by Congress, are recovering from accounting scandals that resulted in orders for massive restatements and the ousters of top management.

A Wednesday hearing is set before the House Financial Markets subcommittee on an agreement Fannie Mae reached with its federal regulator to make several changes to improve controls over its accounting procedures as well as to separate the chairman and CEO positions. Subcommittee Chairman Richard Baker, R-La., told MarketWatch that the agreement with the Office of Federal Housing Enterprise Oversight, or Ofheo,"raises many disturbing questions" about record-tampering and other issues.

Another hearing Wednesday will be held before the Senate Banking Committee, with Federal Reserve Chairman Alan Greenspan scheduled to testify. Treasury Secretary John Snow is set to speak on Thursday, during the second part of the hearing. Both Greenspan and Snow favor more restrictive mortgage portfolios for the companies.

“There's continuing concern about what this week holds for them in Congress," said Bert Ely, an independent consultant who studies the companies.

Freddie Mac reported last week that its profits dropped by more than 40 percent last year.

The problems of larger rival Fannie Mae continue to mount. Not only is it in the process of restating about $11 billion in earnings going back to 2001, but the Wall Street Journal reported Monday that Ofheo is looking into whether it incorrectly accounted for trusts it sets up to issue mortgage-backed securities.

Ofheo has already determined that Fannie Mae did not properly account for derivatives, financial instruments used to hedge against swings in interest rates. The regulator has ordered the company to boost its capital by 30 percent to cushion against risks, with a Sept. 30 deadline.

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