Mortgage Scene: The GSE/FM Watch Battle: A First-Quarter Review.(Federal National Mortgage Association and Federal Home Loan Mortgage Corp.)(Brief Article)

In the wake of Sept. 11, the FM Watch/GSE skirmish had died down a bit. After all, with the U.S. economy in a recession and the nation grieving over the tragedy, who in their right mind would slam two pillar's of the U.S. housing finance system?

But, of course, that was then and this is now. Not too long ago, FM Watch operatives convinced the Wall Street Journal editorial board to write two negative editorials slamming Fannie Mae and Freddie Mac, questioning (among other things) their use of derivatives. (GSE partisans say that every time the Journal slams Fannie and/or Freddie, the person responsible for planting the story gets a bonus.)

The GSEs - which together have about $1.4 trillion in derivatives - use the instruments to hedge their portfolio. The actual risk to the two is a fraction of that, and analysts who cover the GSEs went out of their way to defend the two congressionally-chartered giants, saying more or less, that the WSJ didn't know what it was talking about.

Forget what the GSEs thought of the WSJ editorials, here's what Countrywide chief Angelo Mozilo said: "There wasn't one element of that Wall Street Journal editorial that was correct. All of their facts were wrong." Anyone who knows Mr. Mozilo knows that he has been both a critic and backer of the GSEs. In other words, his opinion is, well, objective.

FM Watch likes, say, that Wall Street is in cahoots with the GSEs because it underwrites their stock and sells their debt and MBS. FM Watch likes to compare the relationship to that of the Street and Enron. It's an interesting analogy, but one thing's for certain: the Street likes to make money and if Fannie and Freddie were really just a house of cards, it would be in the Street's best interest to short the stocks and clean up.

FM Watch also complains that the GSEs don't disclose enough information about what they're up to. That's somewhat of a fair criticism. Being in the information business myself, I wouldn't mind knowing who their derivative counterparties are and I definitely would like to learn what type of assets are sitting in their investment portfolios. (I also would like to know that of commercial banks and the MIs.) And I'm none too pleased that both GSEs stopped disclosing, on a monthly basis, their government and ARM purchases.

At the same time, I sure as heck would like to know what ...