Primary Source
Congress and the Office of Federal Housing Enterprise Oversight, which regulates Fannie and Freddie, loosened restrictions on the companies this year, allowing them to buy more mortgages and temporarily purchase loans up to $729,500 in larger markets, compared with the previous limit of $417,000. The new legislation allows them to buy loans up to $625,000 in the 91 most-expensive markets.
The companies have become the primary source of cash for the housing market as banks and brokers, battered by $480 billion of losses and writedowns from subprime-contaminated securities, reduce lending. Fannie and Freddie were responsible for more than 80 percent of the mortgage bonds created in the first quarter, Ofheo said.
"The markets care as much about the government's comments about us, especially in this market," Fannie General Counsel Beth Wilkinson said in an interview. "If there's any kind of mixed message during a very volatile market it could be very detrimental to the GSEs and therefore the economy."
Marines in Lebanon
Mudd, the son of former CBS Evening News reporter Roger Mudd, has some experience with crisis management. While a first lieutenant in the Marines, he led the first platoon airlifted into Beirut on Oct. 24, 1983, one day after a truck bomb leveled a barracks that housed Marines dispatched as peacekeepers during Lebanon's civil war.
He ran General Electric Capital Corp.'s Asian businesses during the region's slump in 1998. In 2004, four years after joining Fannie as chief operating officer, he took over for CEO Franklin Raines as the company tried to recover from an $11 billion accounting restatement and securities fraud charges.
"You develop a pretty simple, straightforward set of priorities and marching orders," said Mudd, who'd canceled plans to spend summer weekends with his wife and four children at their rented vacation home in Nantucket. As the declines steepened, his wife flew home to support him, leaving the kids with her sister.
Yields Narrow
Yields on Fannie five-year debt narrowed to within 76 basis points of Treasuries. Fannie shares rose 1 cent today to $11.83 on the New York Stock Exchange, up from a 16-year low of $7.07 on July 15. Freddie declined 46 cents, or 5.8 percent, to $7.52, compared with its 16-year low of $5.26 the same day.
"Given the circumstances, he's done a pretty good job," David Dreman, chairman of Dreman Value Management LLC in Jersey City, New Jersey, said of Mudd. Dreman's firm held 10.4 million of Fannie shares at the end of March. He said he added to those holdings last quarter, though is "holding tight" now.
Fannie reports second-quarter results this month, and will likely announce a loss of 74 cents a share, or about $730 million, according to the average estimate of 11 analysts surveyed by Bloomberg. Freddie may report a loss of 60 cents, or about $388 million.
