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The trouble with Fannie and Freddie

Fannie Mae and Freddie Mac spend millions a year promoting their goal of lubricating the mortgage market and widening home ownership. But critics and competitors still won't leave them alone.

Franklin Raines, CEO of Fannie Mae, appeared resigned to the attention his agency is getting when he spoke at a press conference earlier this year: "I've gone to Capitol Hill to answer questions from the Congress banking committee about 12 times in the last year. I'm happy to make it 13." He must have thought such regular grillings were behind him.

In October 2000, Fannie and Freddie finally agreed a compromise with one of their longest-running critics, representative Richard Baker of the House banking committee. Under the compromise, the agencies agreed a six-step programme to improve transparency and safety, including the issuance of subordinated debt to act as an early-warning system to the market if the agencies got into trouble. As Said Saffari, an analyst at CSFB, put it at the time: "The agencies and their congressional critics have, in effect, signed a peace treaty."

Halcyon days seemed to be back for the agencies. Astute political operators, they were on just as good terms with the Bush administration as they were with Clinton's. This was partly thanks to the amazing performance of the US housing sector, which grew by as much as 20% in 2001 - making Fannie and Freddie something of a sacred cow in Washington.

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