WASHINGTON – The Office of Federal Housing Enterprise Oversight (OFHEO), the regulating agency for Freddie Mac and Fannie Mae and which has been under the microscope since last month when Freddie, reeling from its announcement of accounting irregularities, subsequently went through a major overhaul of its management team, reported that the Government Sponsored Enterprises were adequately capitalized under OFHEO's capital standards as of March 31, 2003. The OFHEO announcement came just days after Rep. Richard Baker (R-La.), chairman of the Capital Markets, Insurance and Government Sponsored Enterprises House Subcommittee held a hearing to review the need to reform the regulatory structure of Freddie and Fannie. Baker, a long time critic of the regulatory structure of the GSEs, plans to introduce a bill that would abolish the Office of Federal Housing Enterprise Oversight and create a new government regulator for the GSEs. There has also been speculation on Capital Hill that regulation for the GSEs may be moved to the Treasury. The Federal Housing Enterprises Financial Safety and Soundness Act of 1992 requires OFHEO to determine the capital level and classification of the Enterprises not less than quarterly and to report the results to Congress. The OFHEO classifies the GSEs as adequately capitalized, undercapitalized, significantly undercapitalized, or critically undercapitalized. The GSEs are required by federal statute to meet both minimum and risk-based capital standards to be classified as adequately capitalized. Freddie Mac's capital classification is based on financial information and application of accounting policies that are in the process of a re-audit and restatement. According to OFHEO, "the accounting changes will impact minimum capital surpluses but have limited impact on risk-based capital surpluses as the cash flows modeld and the economics of the various transactions have not changed." As of March 31, 2003, Freddie Mac's risk-based capital requirement was $5.198 billion. Its total capital of $26.512 billion on that date exceeded the requirement by $21.314 billion, and its core capital of $26.1076 billion exceeded the minimum capital requirement by $4.334 billion. Fannie Mae's risk-based capital as of March 31, 2003 was $16.555 billion. Its total capital of $30.309 billion exceeded the risk-based capital requirement by $13.754 billion. In related news, Freddie Mac on June 25, delivered a progress report on issues related to its restatement of prior years financial results. The restatement is being conducted by Freddie Mac's current independent auditor, PricewaterhouseCoopers LLP. The company's accounting problems stemmed from certain accounting policies used by Freddie Mac's former auditor Arthur Andersen. In a company release, Freddie Mac President/CEO Gregory Parseghian assured that, "The new management team of Freddie Mac, working closely with our Board of Directors, is determined to set high standards for candor and transparency in our financial reporting." He continued to say that, "The information we are disclosing today reflects poorly on Freddie Mac's past accounting, control and disclosure practices." Parseghian said Freddie Mac expects the cumulative effect of the restatement to increase the company's retained earnings as of Dec. 31, 2002 by a range of $1.5 billion to $4.5 billion. When the restatement of Freddie Mac's financial results is completed and the company issues new financial data, it will be up to OFHEO Director Armando Falcon Jr. to determine whether the new data warrants the agency to recalculate risk-based and minimum capital requirements for Freddie Mac for previous quarters and whether to -

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