Freddie Mac Sets Portfolio Growth Limit

Freddie Mac, the government-backed mortgage enterprise, will limit the annual growth of its mortgage portfolio to 2 percent of its level at the end of June.

In response to a request by federal agencies, the second-biggest buyer of Florida home loans on the secondary market announced this week that it would work to improve its financial reporting structure, financial controls and other weaknesses identified by the U.S. Office of Federal Housing Enterprise Oversight (OFHEO).

The end-of-June portfolio benchmark is $710.3 billion, a company spokesman said. Federal regulators have grown upset at the company’s untimely and inaccurate reporting. The cap, which begins on Tuesday, will remain in place until Freddie Mac has returned to releasing quarterly financial statements prepared in conformity with GAAP, or generally accepted accounting principles.

James Lockhart, director of OFHEO, said the company was right to control the size of its retained portfolio until it returns to timely filings.

“A large retained portfolio presents both inherent risks as well as a distraction from the task at hand for the enterprise — implementing its various remedial plans,” Lockhart said.

On May 23, Fannie Mae agreed to a similar cap on its retained portfolio, holding it to $727 billion, or its size at year end 2005.

Fannie Mae agreed to hold its retained portfolio as part of a wide-ranging reform plan crafted with OFHEO in the wake of a major accounting scandal. The new regimen calls for stronger accounting, management and oversight systems to be in place. Lawmakers are considering legislation that would stiffen oversight of the two secondary mortgage market giants after myriad scandals and mismanagement shook both firms.

“We believe a constructive working relationship with our regulator is necessary to our ability to meet our mission and generate long-term shareholder value,” said Richard Syron, Freddie Mac’s Chairman and CEO, in a prepared statement.

Freddie Mac has said it aims to return to quarterly reporting following the release of full-year 2006 results. The company has predicted, amid all the speculation regarding the housing market, that we will see a relatively soft landing this year as sales decline and the market returns to a more moderate state. Florida mortgage loan rates are not expected to rise substantially during the remainder of this year, as analysts believe the Federal Reserve’s campaign to combat inflation by raising interest rates may be nearing its end.