Leland C. Brendsel
Chairman And Chief Executive Officer
Freddie Mac

Subcommittee on Housing and Transportation of the Committee on Banking U.S. Senate
May 8, 2001

Good morning, Chairman Allard, Senator Reed, Senator Sarbanes and members of the Subcommittee. It is a pleasure to be here. I am Leland Brendsel, Chairman and CEO of Freddie Mac.

I appreciate this opportunity to talk about Freddie Mac’s financial strength and how it enables us to bring real benefits to America’s families. Freddie Mac is among the strongest, best capitalized and most transparent financial institutions in the world. We are fiercely committed to maintaining the confidence of Congress, investors and the public in our financial strength. There can be no doubt that Freddie Mac will meet our vital mission for generations to come.

Freddie Mac is a Congressional success story. We are at the heart of the best housing finance system in the world. The mortgage market works so well, I think we take it for granted.

Let me describe some key benefits we bring.

• First, there is never a shortage of mortgage money to finance America’s homes. That’s because Freddie Mac has developed high-quality securities that attract global investors. As a result, when other markets are rocked by turmoil, there is no disruption in the mortgage market we serve.

• Second, America’s homebuyers enjoy the lowest possible mortgage rates. In the real estate section of the newspaper, two rates are always listed: the low rate for the loans Freddie Mac can buy, and the higher rate for the jumbo loans we cannot buy. Consumers save real money – currently up to $23 billion a year, according to former OMB Director Jim Miller.

• Third, in the market we serve, America’s families choose from a broad array of mortgage products. These include the 30-year, fixed-rate mortgage with a low downpayment, which is simply not available in most other countries, and even in the U.S. jumbo market is far less available.

• Fourth, Freddie Mac is at the forefront of innovation. Our technology tools, including our automated underwriting service, enable lenders to make fast, fair and accurate decisions to serve the growing diversity of America’s borrowers. Our innovation enables even the smallest lenders to compete, and substantially reduces costs to consumers.

• Fifth, Freddie Mac protects consumers from predatory lending. The sad stories about abusive lending practices do not come from our segment of the market. Freddie Mac buys loans from reputable lenders. We standardize lending and servicing practices. In addition, we foster competition so that consumers have more choices. Our goal is to drive responsible lending throughout the mortgage market.

• Sixth, Freddie Mac brings strength to housing and the economy. In a downturn, Freddie Mac transmits lower interest rates to the mortgage market. Refinancing puts real money in borrowers’ pockets. Plus, the boost to housing is often just the spark the economy needs. Low mortgage rates have made housing one of the bright spots on today’s economic horizon.

• Seventh, by financing homes for millions of families, Freddie Mac has helped America reach the highest homeownership rate ever.

In sum, Freddie Mac brings tremendous benefits to the nation. These benefits are tangible. They are significant. And they far outweigh any value we derive from our Congressional charter.

America’s homebuyers can depend on Freddie Mac continuing to meet our vital mission because we are safe, sound and strong. We are in a single line of business that is inherently safe – the mortgages on people’s homes. Our risk management is disciplined, skilled and second to none. And we hold enough capital to withstand a severe economic recession that lasts for ten years.

Standard & Poor’s recently provided an independent view of Freddie Mac’s financial strength. They gave us a risk-to-the-government rating of “AA-.” To put this in perspective, only five bank holding companies in the United States have a rating this high on their senior debt – and none has higher.

Freddie Mac operates under the continuous oversight of Congress and our regulators – both the Office of Federal Housing Enterprise Oversight and the Department of Housing and Urban Development.

We also operate under the constant scrutiny of the marketplace. Freddie Mac discloses comprehensive information about our exposure to risk – and our effectiveness in managing it. This high degree of transparency subjects us to the rigor of market discipline every minute of every day.

Freddie Mac has long been at the vanguard of world practices in risk and capital management and information disclosure. Last October, we raised the bar with six voluntary commitments. Fannie Mae joined us in making them. As a result, we will provide more information to the marketplace than any other financial institutions in the world. We implemented all six commitments in just six months. The details about each are provided in my written statement.

In developing these commitments, we sought out the best thinking of international regulatory experts, particularly the Basel Committee on Banking Supervision.

I believe our six commitments are a model for all financial institutions. In fact, Moody’s called them “new standards … for the global financial market.” They added, and I quote: “The leadership shown by Freddie Mac and Fannie Mae could prove difficult for other firms to ignore, and could usher in a wave of enhanced financial risk disclosure.”

All this is important for the future. Over the next decade, America’s families will need an additional $6 trillion to finance their homes. Freddie Mac’s strength and vitality will enable us to open doors of opportunity to the homebuyers of the future.

Mr. Chairman, Members of the Subcommittee, I look forward to working with you to secure the future of America’s housing finance system and, with it, the dreams of millions of families.

Thank you.