In perhaps the strongest language yet in the debate over new rules for the government sponsored enterprises, the chairmen of Freddie Mac and Fannie Mae cautioned those who would hamstring their companies that they can't have it both ways.

Warning that what looks like today's solution could quickly become tomorrow's problem, Freddie Mac Chairman Richard Syron said here last week that the "pretty damaging" set of constraints critics would like to place on the GSEs would make them "less relevant."

Hard-liners would like to require greater capital standards of the GSEs, limit their retained portfolios, and restrict new products and programs.

Syron told the National Association of Home Builders convention in Orlando last week that the changes would make Fannie and Freddie "less competitive, less profitable and less relevant," all at a time when it seems the GSEs will be more important than ever to the housing market.

As investors pull back from the private-label mortgage market, the need for mission-driven institutions such as Fannie and Freddie will only increase, the Freddie Mac Chairman said in a talk to the NAHB's Executive Board.

"All of which begs the question, why overly hamper us just when you're going to need us most?"

Fannie Mae Chairman Daniel Mudd also spoke in harsh terms about the effort to squeeze the GSEs, telling the NAHB board the he and his counterpart at Freddie Mac ought to be able to run their businesses successfully.

Both CEOs reiterated that their companies should be placed under the wing of a strong regulator. But Mudd said that should be the end of it, that the regulator should be allowed to regulate. "If it's not right," he said, "the regulator will say so."

Fannie Mae and Freddie Mac keep the mortgage market awash with cash by purchasing loans from lenders, packaging them into securities and selling the paper to investors world-wide. Syron said the two companies "were insulated, arrogant and run in an imperial manner," and their new regulator must make sure that never happens again.

But at the same time, he told the NAHB leadership, "Why change the basic business model of the GSEs when we will be more needed than ever to help sustain the world's most liquid and successful housing finance system?"

The Freddie Mac chairman said it makes no sense to increase capital requirements on the GSEs at a time when big banks may have their capital requirements eased under Basel II. That, he explained, "will put a big squeeze on the GSEs' securitization business -- the one area where there is the least controversy over what the GSEs do."

As Syron sees it, it also make little sense to limit the company's retained portfolios, which have shrunk from 21 percent of all mortgage debt in 2003 to 13 percent last year. "That trend doesn't sound like market dominance or an increased concentration of risk to me," he proclaimed.

Once source of opposition to the GSEs retained portfolios is that they are profitable. But the Freddie Mac chairman said the companies need to make money. Profits, he said, are "an indispensable part of the GSE model."

Profit isn't a four-letter word, either, he added. "It is what allows us to be private-sector institutions, using private-sector methods to respond to market realities."

The genius in designing the GSEs was to benefit millions of home owners and renters with direct federal aid, he went on.

"If something bad befalls the GSEs, the first line of defense is not the taxpayer, it's roughly $100 billion is private shareholder capital. But shareholders demand an adequate return on their investment. And if that return falls too low, the model simply will not work."

Syron said it's not just the future of the GSEs that depends on appropriate legislation but also the fundamental shape of America's housing finance system.

Published: February 12, 2007

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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.