SAN FRANCISCO (Reuters) - With plans to drop some executive perks and trim the costs of home buying, Fannie Mae and Freddie Mac are quickly being transformed from profit-making companies into government-run entities with a single-minded mission to restore the ailing U.S. housing market.
Since the companies were seized in early September, Fannie Mae and Freddie Mac are trying to funnel money into the housing market at the expense of profits in a way that would have been unthinkable just a few months ago.
“Instead of focusing on maximizing returns, we (will) focus on what is the minimum return on capital that is necessary,” Fannie Mae Chief Executive Herb Allison told a mortgage lender conference on Monday.
Late last week, Freddie Mac said it will reject borrowers who have no proof that they can meet monthly payments - an official ban on the company’s finance of no-doc loans that were blamed for helping stoke an overheated housing market.
And within a few weeks of the companies falling into government hands, both Fannie Mae and Freddie Mac dropped their plans to increase a processing fee. The new charge would have hurt homebuyers but added to the company coffers.
Both Fannie Mae and Freddie Mac are due to report third quarter earnings in the next few weeks but investor returns were not seriously discussed at a round-table with the companies’ executives on Monday.
“They’re not so worried about that. They are worried about getting the market fixed and stabilizing housing prices,” said David Kittle, the new chairman of the Mortgage Bankers Association which hosted the Monday conference.
For years, the shareholder-owned companies held a dual mission to deliver a return to investors while nurturing the housing market.
In the last two years, a wave of foreclosures erased billions of dollars of capital that the companies had used to reassure investors and regulators.
The Treasury stepped in and the new company chiefs have a mandate to restore Fannie Mae and Freddie Mac to financial health, while making big investments in the housing market, and they make no apology for that priority.
“Providing more liquidity to the market has been our primary focus,” Freddie Mac Chief Executive David Moffett told the Mortgage Bankers Association conference of his number one mission as the company’s executive of seven weeks.
As the companies stress their public mission they may drop some corporate trappings, said James Lockhart, the chief regulator for the two companies.
Lockhart, head of the Federal Housing Finance Agency, said that he is alert that some company perks and entertainment expenses might look excessive.
“You’ve got to draw a line between what is an extravagance and what is part of doing your business. They understand that there are appearance issues that are very important,” Lockhart said of the company CEOs. “They’ll be looking at it. They understand that they’re going to be under a spotlight.”
Lockhart said that he and the company chiefs will have to determine whether treats like luxury seats to sports venues are justified business expenses.
Kurt Pfotenhauer, a veteran lobbyist and head of the American Land Title Association, said he was struck by the new emphasis as the regulator and two CEOs shared a stage to talk about their mission.
“The regulator is the embodiment of the public interest and that regulator today stood as an equal with the CEOs,” he said. “That was as clear a message that could be sent that the public mission is the most important for these companies.”
Reporting by Patrick Rucker; Editing by Bernard Orr