Over the past two years, Freddie Mac has aggressively used the Internet to lower the cost of marketing its securities and increase its profile among mortgage brokers. But critics now insist that the government-sponsored corporation has gone too far, and they are calling on federal authorities to force the company to rescind a $2.5 million line of credit it is extending to online loan broker LendingTree.
Freddie Mac participated in a recent $45 million financing package that will bolster the balance sheet of LendingTree, which lost $30.8 million on revenue of $66 million last year.
According to critics, the deal violates Freddie Macs congressional charter. On March 29, FM Watch, a Washington, D.C., association funded by financial firms such as American International Group, GE Capital Services and Wells Fargo, sent letters to the Office of Federal Housing Enterprise Oversight and the Department of Housing and Urban Development asking them to block the LendingTree deal.
If the federal agencies dont stop Freddie Mac, which had $29.9 billion in revenue in 2000, the company will eventually "be set up as a primary lender or will control the primary mortgage market through a surrogate lender like LendingTree," warned Mike House, executive director at FM Watch. He noted that under federal rules, Freddie Mac may not act as a primary lender for consumers.
Pete Maselli, Freddie Macs senior vice president of business development, denied the company is trying to get into consumer lending, and said LendingTree is simply a "good partner." He added: "We are content as a secondary market player, particularly if we can extend our technologies to primary players in the market."
Freddie Mac and its larger cousin, Fannie Mae, are publicly traded companies that were created by Congress to help promote U.S. home ownership. They buy mortgages, package them as securities and resell them on the open market. The two have access to — but have never used — federally backed lines of credit that help reduce their cost of capital and give them an advantage in the marketplace. Congress is now considering a bill that would restructure federal oversight of the companies.
Harry Milling, a financial services analyst at Morningstar, said that by helping LendingTree — which brokers mortgages and auto, personal and student loans — Freddie Mac is trying to "extend its market reach and get new revenue."
Officials at the OFHEO and HUD said their agencies have begun reviewing the LendingTree deal, but they did not provide any details or estimate when their investigation will be completed.