Gregory Parseghian, Freddie Mac's new chief executive, won praise from investors the past seven years as he helped manage the company's market risks. Now his political skills will be tested.
Parseghian, 42, faces the task of restoring the second-largest mortgage-purchaser's credibility after the ouster of its top three officials. The company pledged its cooperation in the criminal and securities investigations opened yesterday by the US Attorney's office in Alexandria, Virginia, and the Securities and Exchange Commission.
As chief executive, Parseghian will also defend the government-chartered company on Capitol Hill, where critics say Freddie Mac and rival Fannie Mae must provide fuller disclosure.
They say the companies overstepped their mandate of making funds more widely available to the housing industry.
"In this politically charged atmosphere, it's going to require confidence, it's going to require understanding of the questions and, most importantly, patience," said Laurence Fink, chief executive of money manager BlackRock Inc, who hired Parseghian in the 1990s. "I don't expect that to be a difficult process for him."
Congress has called for hearings that could result in laws forcing Freddie Mac and Fannie Mae to pay filing fees for bonds and mortgage-backed securities. That could amount to a combined US$250 million in new costs next year, or nearly half of all such fees the SEC expects to collect, according to a Congressional Budget Office study. The two enterprises own or guarantee 42 percent of the US mortgage market.
Freddie Mac fired President David Glenn on Monday and pushed out CEO Leland Brendsel and chief financial officer Vaughn Clarke amid an investigation of its accounting. US Secretary of the Treasury John Snow yesterday called for more disclosure and oversight for both Freddie Mac and Fannie Mae.
Freddie Mac shares, which fell US$2.65 to US$47.35 yesterday, have plunged 21 percent this week, erasing US$8.7 billion in market value. Investors expressed confidence in Parseghian.
"Freddie Mac is in outstanding hands," said Scott Simon, who helps manage US$325 billion in assets at Pacific Investment Management Co in Newport Beach, California. Parseghian is "one of the most respected people out there." Parseghian assumes his new job without the help of Lauren Tennes, Freddie Mac's former director of government relations who left last month for student loan company Sallie Mae.
He faces what critics promise will be rigorous scrutiny of his company's management and operations -- and as the house-funding agencies face the prospect of stricter regulation.
Representative Chris Shays, a Connecticut Republican, and Representative Edward Markey, a Massachusetts Democrat, have introduced a bill calling for Freddie Mac and Fannie Mae to register their debt with the SEC.
Debt registration was omitted in an agreement by the companies last year to register their stock and file regular financial statements with the SEC. The two enterprises have a combined US$1.55 trillion in outstanding debt, about the size of France's GDP last year.
"I think there's a real momentum building toward finally including these companies under the same regulations as every other company," Markey told Bloomberg Television in an interview on Capitol Hill.
A lobby group representing mortgage issuers such as Washington Mutual Inc, Bank One Corp and Wells Fargo & Co wants to go further: it's pushing for a new regulator to pare back the activities of Fannie and Freddie, said J.C. Watts, until last year the No. 4 ranking Republican in the House and now chairman of the industry-supported FM Policy Focus.
"When you don't have regulatory oversight, you're cruising for a bruising," Watts said in a telephone interview from his home in Norman, Oklahoma. The investigation at Freddie Mac "is a wake up call for all of us to have a strong, single regulator."
Watts says the companies' present regulator, the Office of Federal Housing Enterprise Oversight, isn't qualified to regulate the S&P 500 companies. He said the companies overreached their mandates by entering the mortgage refinancing business.
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