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Tuesday, May 04, 2004 - Page updated at 12:00 A.M.
Fannie Mae paid WaMu in home-loan swap
By James Tyson
WASHINGTON Fannie Mae paid Washington Mutual last year to take some of its mortgage securities in return for multifamily-home loans, in an effort to meet its federally mandated affordable-housing goals, a U.S. housing official said yesterday.
The size of the Washington Mutual home-loan portfolio ranged between $5 billion and $8 billion, said John Weicher, an assistant secretary at the Department of Housing and Urban Development (HUD).
The Securities and Exchange Commission may investigate why the Seattle-based thrift the nation's largest didn't disclose the swap, Weicher said.
He didn't say how many Fannie Mae securities were swapped or what type of incentives Fannie Mae paid to Washington Mutual.
To try to meet housing goals, Freddie Mac last year paid "contractual incentives" of $100 million to Washington Mutual and $65 million to Citigroup in transactions similar to Fannie Mae's. WaMu's portfolio totaled $6 billion; the Citigroup portfolio, $5 billion.
"We have requested more information about these transactions," Weicher told reporters in a conference call. The House Financial Services Committee on April 27 also directed the companies to provide details about the swaps.
"The transactions were unusual," Rep. Michael Oxley, chairman of the House committee, said in a letter telling the companies to identify any outside advisers for the swaps and to describe any bonuses, stock options or other incentives provided employees who arranged the deals.
Based on the limited information available to it, HUD hasn't determined whether the transactions violated federal regulations, Weicher said. "I wouldn't characterize these as suspicious."
Fannie Mae and Freddie Mac may provide cash incentives to mortgage banks, even though they could promote homeownership for low-income people by more efficient methods, such as setting aside a portion of their earnings for such purposes, Weicher said.
"Fannie Mae has a longstanding strategic relationship with Washington Mutual," Fannie Mae spokesman Chuck Greener said in a statement. "As part of that arrangement, we conducted several multifamily transactions with Washington Mutual during 2003.
"From time to time, we enter into transactions that are motivated, in part, by our need to support affordable-housing-goal activities."
HUD has proposed rules that would require Fannie Mae and Freddie Mac to channel 57 percent of their mortgage financing by 2008 toward homes for people with incomes no greater than area median income an increase from the current 50 percent, Weicher said.
The rules, disclosed last month and subject to a 60-day public-comment period, are to become law Jan. 1.
Congress created Fannie Mae and Freddie Mac to make money more widely available for home loans. While always meeting federal housing goals, the companies have long lagged private mortgage banks in serving low- and medium-income homebuyers, Weicher said.
The Federal Reserve, General Accounting Office, Congressional Budget Office and other agencies have expressed concern that the companies' record in increasing homeownership doesn't measure up to their government benefits, including exemption from state and local income taxes.
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