WASHINGTON — The takeover of Fannie Mae and Freddie Mac isalready showing positive signs, such as a substantial decline inmortgage interest rates, James B. Lockhart, director of the FederalHousing Finance Agency said on Capitol Hill recently.

“A lack of confidence had resulted in continued widening of thespread between yields of their MBS and yields of Treasurysecurities meant that virtually none of the large drop in Treasuryinterest rates over the past year had been passed on to themortgage markets,” Lockhart said. “On top of that, Freddie Mac andFannie Mae, in order to try to build capital, may have raisedprices and tightened credit standards beyond what was necessary forsound underwriting. I am pleased to say that the enterprises'funding costs and the spreads on MBS have declined,” Lockhart toldthe House Committee on Financial Services.

Some credit unions had stopped selling their loans to Fannie andFreddie because the spread was not favorable.

Yields on Freddie Mac guaranteed mortgage securities havedeclined relative to Treasury debt yields by one-third of apercentage point since the Friday before the conservatorship,Lockhart said. This lower cost has been passed on to homebuyers,with 30-year, fixed-rate mortgage rates below 6% for the first timesince January.

FHFA also appointed new boards and management for the mortgagegiants. Both Fannie and Freddie have new CEOs. Herb Allison,president/chief operating officer of Merrill Lynch, will be the CEOfor Fannie Mae. David Moffett will preside over Freddie Mac.Moffett previously served as the vice chairman/chief financialofficer of US Bancorp.

New boards are being formed and new nonexecutive chairman havealready been appointed.

As part of the conservatorship, the former CEOs were asked toleave and not given golden parachutes. Lobbying and all politicalactivities have been halted and stock dividends have been cut,Lockhart said.

Looking forward, Lockhart said FHFA has challenged Fannie Maeand Freddie Mac to be more creative on foreclosure prevention andwill work with the new CEOs to modify business practices such asthe lengthy delay before pulling delinquent loans from securitizedpools.

FHFA was created as the regulator of the twogovernment-sponsored enterprises under the Housing and EconomicRecovery Act of 2008, the massive housing bill signed into law inJuly. On Sept. 7, FHFA placed the GSEs into a conservatorship.

–[email protected]