Expect a Charter 'Move' By the GSEs in Near Future.

Fannie Mae chairman Franklin Raines knows he has a good thing going. So does his counterpart over at Freddie Mac, Leland Brendsel. Both men know the mortgage business like the backs of their hands and they know - probably better than anyone - just how valuable it is having a government charter.

Valuable indeed. Last year, Freddie Mac earned (net) $5.7 billion, Fannie Mae $4.6 billion. When it comes to "operating" earnings, Fannie, which is larger than Freddie, outearned its closest competitor $6.3 billion to $3.8 billion.

When you add up the numbers, the two together earned $10.1 billion or $10.3 billion, depending on which type of accounting you subscribe to. "GAAP" or "operating," either way, it's a heck-of-a-lot of money - money that General Electric, American General, Wells Fargo and J.P. Morgan wouldn't mind getting their mitts on. In fact, that's why these four are still charter members of FM Watch, a group whose goal in life is to "contain" the charter creep of Fannie & Freddie. If you think that FM Watch is really concerned about the possibility of a taxpayer bailout of the GSEs, I have some Enron bonds I'd like to sell you.

Yes, the stated goal of FM Watch is "charter creep," but as most industry veterans know, these four horsemen of the "Mortgage Apocalypse" wouldn't mind having a piece of Fannie and Freddie's business. (Household is the fifth charter member, but its new owners are rumored to be contemplating bolting the group.) And yes, Fannie and Freddie wouldn't mind having bits and pieces of their businesses, too, mortgage insurance being the lowest piece of hanging fruit.

At a recent investor conference, Mr. Raines (in response to a question) hinted that the mortgage giant might one day relinquish its government charter - but only if the positives outweighed the negatives, and only if it were in the best interest of the company's shareholders. The big question, of course, is when will that day come.

Both Fannie and Freddie regularly weigh the benefits of their government charters and neither have come seriously close to turning in their "eagles," though sometime in the early 1990s then Fannie Mae chairman David O. Maxwell toyed with the idea before his top lieutenant Jim Johnson talked him out of it.

Wall Street analysts as well as GSE competitors (the FM Watch bunch and their silent allies) know that some day Fannie and/or Freddie will give up the government charter. And if they don't give it up, chances are their attorneys and lobbyists will find a way to expand it, allowing them to enter new business ...