ORLANDO, FLA. - Despite Fannie Mae President and CEO Daniel Mudd and Freddie Mac Chairman and CEO Richard Syron not showing up for the Mortgage Bankers Association's 92nd annual Convention and Expo 2005, the show went on with Freddie Mac President and COO Eugene McQuade picking up the slack.

In his prepared remarks, McQuade decided to do away with the usual "rah-rah trade speech" as Freddie Mac, and the rest of the country, is dealing with a bigger problem: the aftermath of Hurricanes Katrina, Rita, and, more currently, Wilma. McQuade enumerated Freddie Mac's efforts to respond to the problem, including allocating a certain part of its retained portfolio for buying loans in affected regions that closed before the hurricanes hit as well as suspending payments for borrowers in these areas.

"Hurricanes are extraordinary events," McQuade said, adding that it is in times like this when the role of the GSEs stands out. "This is exactly what Congress mandated us to do, to provide stability and liquidity to the housing markets," said McQuade. This is why, McQuade said, any legislation limiting GSE portfolio growth - which he emphasized is conservatively managed - would be detrimental, as this growth is integral to the GSEs' mission to stimulate demand for all mortgage lending activity. Limiting portfolio size would also further concentrate risk in the financial system, as there would be less support for longer-term mortgage loans. He added that strengthening the GSE regulatory environment is good for the industry. "A strong regulator is really a good ally," he said, noting that this would boost confidence in housing finance.

Another role that the GSEs play is that of intermediary, fostering foreign investment, McQuade said, explaining that there is a substantial overseas market for U.S. mortgage investments right now and going forward, providing significant support to the sector.

In the question and answer portion, McQuade cited rising interest rates and tax law changes as the short-term obstacles the mortgage market is facing. Longer-term challenges include the availability of affordable housing, as well as lagging minority home ownership. "I think it's a huge issue - trying to bring more diversity," he said.

McQuade does not believe there is a national housing bubble, although he thinks there will be an adjustment in certain parts of the country. In terms of affordability mortgage products, McQuade emphasized the importance of borrower suitability. "I haven't seen a bad mortgage product," he said, underscoring that it is about finding the right kind of borrower to own the loan. He said that FICOs and LTVs are even better in many affordability mortgages compared to standard 30- or 15-year loans.

(c) 2005 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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