Fannie, Freddie Bill May Fail Over Portfolio Issue, Baker Says

Bloomberg reports:

Legislation strengthening regulation of Fannie Mae and Freddie Mac could collapse because of a limit on the ability to cut the companies' combined $1.4 trillion in mortgage assets, Representative Richard Baker said.

The House of Representative passed legislation on May 22 creating a stronger regulator for Fannie Mae and Freddie Mac that removed constraints sought by the Bush administration.

``In my discussions with Treasury before and after consideration of the bill, there was considerable concern expressed about'' the amendment preventing the regulator from cutting the companies' assets should they be deemed a threat to financial market stability, Baker said in an interview.

Asked if he thought the amendment could kill the bill, Baker, a Louisiana Republican, said, ``I do.''

Baker and 89 other Republicans supported the bill in a 313-104 vote. He has sought for more than seven years to tighten oversight of Washington-based Fannie Mae and McLean Virginia- based Freddie Mac, the largest sources of money for U.S. home loans. The two companies own or guarantee about 40 percent of the nation's $10.5 trillion residential mortgage market.

The May 22 legislation gives a new regulator the power to alter reserve requirements for Fannie Mae and Freddie Mac, sell off their assets in the event of default, bar them from new lines of business and reduce the companies' mortgage assets when the portfolios threaten the soundness of the companies.

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