Some Progress Cited at Fannie and Freddie

Wall Street Journal (04/16/08) P. A2; Crittenden, Michael R.
The Office of Federal Housing Enterprise Oversight (OFHEO) said Fannie Mae and Freddie Mac have made improvements in their accounting procedures, enabling both government-sponsored enterprises to file financial statements on time in February. Despite this progress, OFHEO's annual report to Congress noted that more improvements are necessary. With regard to Freddie Mac, OFHEO said deteriorating asset quality, ineffective internal controls and inadequate corporate governance remain a problem. The agency urged the GSE to fill empty board seats, hire a chief credit officer, establish a credit committee and separate the duties of chairman and CEO. As for Fannie Mae, OFHEO said it is engaging in a "somewhat aggressive" interest-rate risk management strategy and points out that certain portfolios and funding have not been hedged by derivatives, putting the company at risk for major credit losses.