- The Washington Times - Monday, April 2, 2001

Freddie Mac faced a tough year of scrutiny and name calling, but the company is as strong as ever, analysts say.

The Tyson's Corner stockholder-owned corporation was established by Congress in 1970 to create a continuous flow of funds to mortgage lenders. The company buys, secures, and invests in home mortgages, in an effort to provide homeowners with lower housing costs, and better access to home financing. The company buys residential mortgages and funds them on capital markets using mortgage backed securities, or through bills, notes and bonds.

Last year, Rep. Richard H. Baker, Louisiana Republican, expressed concerns over Freddie Mac's operations. It wasn't disclosing as much financial information as it could, he said. He also said Freddie Mac's and Fannie Mae's debt will surpass that of the Treasury's by 2005, and that the two companies don't have the same capital levels that banks have.

"They only have an existing $2.5 billion line of credit with the Treasury Department. If any one of these tumble, the government would jump in to save the day. Taxpayers would have to help pay for it," Michael DiResto, press secretary for Mr. Baker says. "It would dwarf the S&L; crisis."

Stock prices have hovered around the low $60 mark since the beginning of December. The company reached a 52-week high of $70.13 on Dec. 18, and posted a 52-week low of $38.38 on Aug. 1. The stock closed at $64.83 Friday.

"Fears of stepped-up regulations and their government guaranty withdrawn have been overblown," says Harry Milling, an analyst with Morningstar in Chicago. "That's why the stock is up."

Last October, Freddie Mac and Fannie Mae entered into a voluntary agreement with the government. The agreement said both companies would make six commitments to provide better risk management and better financial information about the company. Freddie Mac said at the hearing held last Tuesday they have completed five of the six actions, and would complete the sixth in April.

"[Mr. Baker] felt we could be more transparent in our disclosure," Douglas Robinson, a spokesman at Freddie Mac, says. "It's always been Congress' purview to make sure we work in a safe manner. Our relationship with them has always been cordial, and I feel we're working toward the same goal." he adds.

Mr. Baker said at the hearing that, while he is pleased with the steps the two companies are taking, he still intends to create a bill aimed at putting the companies under stronger regulation. Both companies say they would comply with stronger regulators.

Lowered interest rates have also benefited the company, says Caren Mayer, an analyst with Banc of America Securities in San Francisco.

"With lower interest rates, more people are in the market to buy houses, which is giving Freddie Mac more opportunity to have strong earnings. That's their bread and butter," she says.

For the fourth quarter ended Dec. 31, net income rose 12 percent to $663 million (89 cents per share) from $594 million (79 cents) for the like quarter the year before. Annual net income rose 15 percent to $2.55 billion ($3.40) from $2.22 billion ($2.96).

Analysts say there is a great need for businesses like Freddie Mac, and breaking up these programs would do more harm than good.

"If you want to call them a monopoly, go ahead, but no one really does come close to them. Morgan Stanley Dean Witter is a great company, but they are highly cyclical," Mr. Milling says. "With Fannie and Freddie, there is always a housing market, and they have a huge share of the market."

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