Fannie Mae, Freddie Mac Legislation Seems Likely

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The Office of Federal Housing Enterprise Oversight, which oversees the government-sponsored mortgage giants Fannie Mae and Freddie Mac, may be on its way out, with Congress potentially giving a new regulator much more authority to limit the companies' growth.

The Bush administration indicated last week that it would be flexible on legislation to tighten regulation of the companies. Legislation stalled in 2003 and 2004 due to strong lobbying efforts on the part of the two companies. But accounting problems at both have cost them some political capital, making legislation this year more likely.

Treasury Secretary John Snow echoed Federal Reserve Chairman Alan Greenspan in calling for limits on the size of the companies' holdings of mortgages and related securities, the Wall Street Journal reported.

At a hearing of the Senate Banking Committee last week, though, Snow did not call on Congress to set a specific statutory limit on those portfolios, calling instead for a tougher regulatory body that would set limits.

This approach would keep Congress out of a protracted and technical debate over numbers and could help to pave the way for legislation.

"There's a clearer road map toward legislation than there was a week ago," Howard Glaser, a Washington consultant who served as a housing official in the Clinton administration, told the Journal.

The companies keep money flowing into the housing market by buying mortgage loans from lenders and turning the loans into securities that are sold to investors, the Journal reported. However, between the two companies, they hold an additional $1.5 trillion in loans and related securities on their books, which Greenspan said last week was too much. Fannie and Freddie say those holdings help ensure a steady supply of money for home loans.

Greenspan and the administration say the holdings have no impact on the rates paid by consumers and that because of their widespread holdings, a wrinkle in the hedging activities at either company could cause a financial crisis.

Snow suggested that Congress could provide "policy guidance to the new regulator that says, 'You have some discretion here but you should use that discretion to limit those portfolios' " to the amount necessary to ensure smooth functioning of the market for mortgage-backed securities, which provide funding for home loans, the Journal reported.

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