Freddie also Now Faces Threat of Portfolio Limits.(Federal Home Loan Mortgage Corp.)

WASHINGTON -- The Office of Federal Housing Enterprise Oversight could impose portfolio limits on Freddie Mac, the company's chairman warned investors last week, which would potentially put Freddie in the same boat as Fannie Mae.

The new acting OFHEO director, James Lockhart, recently placed a freeze on the size of Fannie Mae's portfolio until the government-sponsored enterprise fixes its internal controls and financial reporting systems.

"Director Lockhart has indicated that he intends to consider whether additional remedial action may be appropriately applied to Freddie Mac while we continue to fix our control environment. And this could include consideration of portfolio growth limitations for some period of time," Freddie chairman and chief executive Richard Syron said.

The CEO stressed during a teleconference with investors and analysts that fixing the internal controls and accounting infrastructure "is our most highest and most urgent priority."

Freddie hopes to complete the testing of its systems by year-end 2006. But it does not expect to begin timely reporting of quarterly results under the release of its 2006 annual report.

Mr. Syron made the disclosure about potential portfolio limits during a teleconference about the corporation's 2005 unaudited annual report (see related story).

Freddie Mac executives said they expect return on equity to be in the low teens - even though 2005 ROE was 3.3% in 2005. But double-digit ROE growth implies solid portfolio growth. Freddie's portfolio grew by 8.7% to $710 billion in 2005 and it has grown at a 5.8% annualized rate during the first four months of this year to $723.8 billion.