By Patrick Rucker
WASHINGTON (Reuters) - The regulator for Fannie Mae (FNM.N: Quote, Profile, Research, Stock Buzz) and Freddie Mac (FRE.N: Quote, Profile, Research, Stock Buzz) said that he will warn U.S. lawmakers at a hearing on Thursday that elements of a proposed economic stimulus package would let the mortgage finance companies take on too much risk.
James Lockhart, director of the Office of Federal Housing Enterprise Oversight, said he has misgivings about letting the two government-sponsored enterprises finance large loans and that he would bring that message to a Senate Banking Committee hearing.
"I am going to say, 'You are throwing on more risk here and more risk there. They are at significant risk already," Lockhart told the Reuters Regulation Summit.
Lockhart objects to a proposal that would allow Fannie Mae and Freddie Mac to finance home loans with values of nearly $730,000 in some areas.
Wall Street firms have recently taken big losses on their risky home loan investments prompting investors to shun most mortgages that did not pass through the two companies.
Fannie Mae and Freddie Mac are publicly traded companies that hold federal charters to nurture the nation's housing market and investors regard those government ties as an implied guarantee.
Proponents of reform say the new loan levels will draw investors back into the home loan market, resulting in lower costs for mortgage borrowing. In recent months, the interest rate on high-cost loans has been about 1 percentage point above that for mortgages that could be financed by Fannie Mae and Freddie Mac.
But Lockhart said the companies have still not fully recovered from massive accounting scandals and need the scrutiny of a tough, new regulator. Continued...
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