The Office of Federal Housing Enterprise Oversight is widening its supervision of Fannie Mae and Freddie Mac to include the influence the two giant secondary market institutions exert over the entire mortgage business.

OFHEO was created in 1992 to make sure the government-sponsored enterprises are adequately capitalized for the risk they bear and operate in a safe and sound manner. But given the spectacular growth the two companies have experienced in recent years and their marketplace "dominance," OFHEO's new director, Armando Falcon, believes the agency has no choice but to take an increasingly broader view of its mission.

"We must understand the impact of the enterprises' new activities on the entire mortgage market and its participants," Falcon said. "We must do so because all the participants are intertwined and dependent on each other."

There has been a growing tension between Fannie Mae and Freddie Mac and other mortgage market companies in recent months. Other players in the mortgage market complain that the GSEs' movement into more and more actitivites that are already serviced adequately by totally private companies is a threat to their businesses.

Fannie and Freddie were chartered by Congress to maintain liquidity in the market and keep costs to consumers as low as possible. To do that, they purchase loans from local lenders, wrap them into securities and sell the packages to investors throughout the world. In one way or another, the two companies touch more than half of all home loans.

Noting that the GSE's have doubled in size since OFHEO was born, Falcon said their "influence extends to every step of the mortgage process."

The federal regulator admitted that "good management" has had as much to do with Fannie Mae and Freddie Mac's extraordinary growth and success as their status as GSEs. But because of pressures on them to maintain their 20-plus percent return of equity, he said OFHEO must widen the scope of its oversight.

In their constant search for new business opportunities and markets, the GSEs "are raising important public policy questions that need to be fully analyzed and addressed," he said.

"Prudent oversight requires that we do more."

In that regard, Falcon, who was general counsel for the House Banking Committee before his OFHEO appointment, said his agency will, among other things, explore the risks and policy implications of the GSEs' expanded activities, including home equity and subprime lending.

It also will delve into the question of whether automated underwriting systems more precisely measure credit risk over a complete housing cycle as well as the long-term impact of AU on the primary market.

These issues, he explained, are "all part of the larger, important questions: What are the systemic risk implications to the broader capital markets of continued enterprise growth and expansion?"

Published: February 1, 2000

Use of this article without permission is a violation of federal copyright laws.

When Lew Sichelman first started writing about housing in 1969, he was the youngest real estate writer in the country. Now, 37 years later, he's one of the oldest -- and most decorated. He has been rated the top housing columnist in the country by the National Association of Realtors as well as by his peers in the National Association of Real Estate Editors. Indeed, NAREE has recognized his work on numerous occasions. One year - due to his advancing age, he can't recall which one - he earned top honors in the annual NAREE Journalism Contest in three out of the four major writing categories. It was the first time one writer has won so many NAREE awards in a single year. Known for his ability to make even the most difficult topics understandable, Sichelman also has been honored by the National Association of Home Builders and the Mortgage Bankers Association. He began providing in-depth coverage of and consumer-oriented information about housing and housing finance at the Washington Daily News, where he was real estate editor. He held that same position for nine more years at the Washington Star, which purchased the News in 1972. The Star, a so-called "writer's newspaper" which also had the misfortune of being an evening paper, was put out of its misery in 1981, and Sichelman, who had begun self-syndicating his column in 1978, decided to become a full-time columnist. Today, his column, "The Housing Scene," is distributed by United Media to newspapers throughout the country. He also is on the staff of National Mortgage News, an independent newspaper which is considered the bible of the mortgage business. And he writes for numerous other publications, including MarketWatch.com, where he answers readers questions once a week, Sports Illustrated (don't ask), RealtyTimes.com, BigBuilder and others. Sichelman is married, the father of five and grandfather of eleven.