Regulator to Block New Loan Products from Fannie, Freddie By Nick Timiraos Wall Street Journal 02-02-2010

Regulator to Block New Loan Products from Fannie, Freddie By Nick Timiraos Wall Street Journal 02-02-2010

Regulator to Block New Loan Products from Fannie, Freddie
By Nick Timiraos
The Wall Street Journal
February 2, 2010

Mortgage-finance giants Fannie Mae and Freddie Mac will not be allowed to introduce new loan products in the mortgage market while they are under the control of the U.S. government, the companies' federal regulator announced Tuesday in a letter to Congress.

Since last summer, Fannie and Freddie had been allowed to submit new loan products for review through a process established by the companies' federal regulator, the Federal Housing Finance Agency. While no new products have been submitted yet, the regulator cited the companies' massive losses and looming challenges in making his decision to block future product submissions.

"It's a standard regulatory approach to limit or restrict new business activity," said Edward DeMarco, the FHFA's acting director, in an interview Tuesday.

In a letter to senior lawmakers, Mr. DeMarco said he had "concluded that permitting the enterprises to engage in new products is inconsistent with the goals of conservatorship." He cited the "critical and substantial resource requirements" from the companies' current efforts to stem ballooning loan losses and the fact that the companies operate today "only with the support of taxpayers."

The new rule won't apply to foreclosure prevention efforts, which are considered separate from new product offerings.

Representatives for Fannie Mae and Freddie Mac declined to comment.

Mr. DeMarco also defended his decision to approve multimillion-dollar pay packages for the companies' top executives, a move that has drawn bipartisan criticism in recent weeks.

He cited the need to retain top talent given the massive challenges and uncertain future facing both companies in approving the pay deals. "It is critical to retain existing staff, including many senior managers, and critical to attract new executive management" to fill vacancies, he wrote. "Any other approach puts at risk the management of more than $5 trillion in mortgage holdings and guarantees that are supported by taxpayers."

House Republicans last month introduced a measure that would replace the salaries of top executives with federal pay scales, which are capped at nearly $200,000. The chief executives of Fannie and Freddie are set to take home cash compensation and bonus pay worth $6 million for 2009, which the FHFA said is 40% below the compensation levels from 2007.

Both companies have faced turnover in the executive ranks and Freddie Mac last year had to recruit new chief executive, financial and operating officers. "The challenge of doing this with the companies in conservatorship is immense," said Mr. DeMarco.


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