Thursday, April 7, 2005

Dennis Cook / Associated Press Federal Reserve Chairman Alan Greenspan said appointing a regulator for Fannie Mae and Freddie Mac may not be enough.

Greenspan wants tighter rein on nation's mortgage giants

Fed chief urges Congress to trim portfolios of Fannie Mae, Freddie Mac.

By Jeannine Aversa / Associated Press

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WASHINGTON -- Federal Reserve Chairman Alan Greenspan urged Congress Wednesday to limit the size of the multibillion-dollar portfolios held by mortgage giants Fannie Mae and Freddie Mac, warning that simply creating a strong regulator would not suffice.

"World class regulation, by itself, may not be sufficient," Greenspan told the Senate Banking Committee.

Fannie Mae is the No. 1 U.S. buyer of home mortgages, while rival, Freddie Mac, is second.

A debate over the appropriate regulation of the two mortgage titans has taken on heightened scrutiny in the wake of accounting scandals at both Fannie Mae and Freddie Mac.

"Without restrictions on the size of (their) balance sheets, we put at risk our ability to preserve safe and sound financial markets in the United States, a key ingredient of support for homeownership," Greenspan said.

Prospects for passage of legislation appear stronger than in previous years, when the two politically influential companies successfully lobbied against new restraints. The Bush administration wants to see legislation enacted, though it has not endorsed a specific plan.

"It is of upmost importance to enact legislation this year," said Sen. Elizabeth Dole, R-N.C., a member of the Senate banking panel, who helped write a bill tightening controls over the two mortgage companies. On the House side, Rep. Richard Baker, R-La., chairman of a subcommittee that oversees Fannie Mae and Freddie Mac, proposed legislation that would strengthen the government's hand over them.

Congress created Fannie Mae and Freddie Mac to inject money into the home-loan market. They buy mortgages and bundle them into securities for sale to investors worldwide.