Freddie Mac Could Be Forced to Raise $30B in Surplus

WASHINGTON, DC-A ruling by the Office of Federal Housing Enterprise Oversight is expected to come down this week calling for mortgage financier Freddie Mac to increase its minimum capital surplus by 30%. The corporation’s current required minimum capital surplus is $24 billion; that number would go up to $31.2 billion if all goes as OFHEO plans. The federal agency of the US Department of Housing and Urban Development charged with monitoring government-sponsored enterprises Fannie Mae and Freddie Mac.

It was last week during testimony at a House Financial Services Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises hearing that OFHEO director Armando Falcon voiced the surplus notion as an effort to keep a tighter reign on the organization following revelations of misguided accounting practices last summer. It was those practices, according to OFHEO’s December 2003 Report of the Special Examination of Freddie Mac, which led to Freddie Mac declaring a $5-billion overstatement of earnings. Upon release of the report, Freddie Mac signed a Consent Order and Settlement with regard to the restatement that called for the lender to pay a $125-million fine and to rectify pertinent procedures in areas ranging from governance and internal controls to corporate culture.