Fannie Mae and Freddie Mac, under assault from major corporate lenders and their allies in Congress, have formed a group of their own to rebut criticism that the government-sponsored enterprises are using their Federal backing to compete in markets against private companies.

Fannie and Freddie have been joined in the new Homeownership Alliance by the National Association of Home Builders and the Community Bankers of America. The National Association of Realtors has been invited to join the group, but has not committed. The National Association of Exclusive Buyer Agents, which has other working relationships with Fannie Mae, had not been contacted.

The Homeownership Alliance is being formed to offset the impact of FM Watch, a group organized two years ago for the purpose of watching Fannie and Freddie and reporting on the GSEs' efforts to expand into areas already served by private enterprises.

Currently, bills before Congress would sharply curtail the activities of the organizations, or remove their government backing.

Freddie Mac spokeswoman Sharon McHale said the Homeownership Alliance will not only focus its energy on FM Watch but will "look out for the interest of homeowners in the United States and to protect the dream of homeownership."

Alliance steering committee head Rick Davis said, "We've got to do something to make sure these guys know what they are tampering with. It really is more of an effort to try to educate the media and policymakers that there is a system in place that works very well."

Fannie and Freddie were created by Congress for the purpose of creating and organizing the secondary mortgage market. Qualifying individual homeowner loans are sold to Fannie and Freddie by the lenders, and are packaged with other qualifying loans and sold on the financial markets.

The system creates a steady supply of money back to lenders, which can be reloaned to next homeowner. Although they are private companies, Fannie and Freddie are underwritten by a line of credit at the U.S. Treasury Department.

In the past decade, however, Fannie and Freddie have expanded their businesses into areas that some critics say are beyond their original federal charter. Those critics say if those side businesses fail, the entire system of providing a foundation for homeownership could be corrupted.

Neither Fannie nor Freddie have ever used their Treasury line of credit.

The Homeowner Alliance reportedly will expend much of its effort to educate Congress, the news media and the public about the role of the GSEs.

Published: August 16, 2000

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