Bernanke Criticizes Fannie, Freddie Bill
Thursday, February 16, 2006
In his first appearance before Congress as Federal Reserve chairman, Ben S. Bernanke picked up where Alan Greenspan left off, criticizing a House bill that would strengthen oversight of Fannie Mae and Freddie Mac for not going far enough to rein in the companies' investment portfolios.
Bernanke said the House bill would not give a new regulator for the two companies "sufficiently strong guidance" on how to regulate the portfolios, which he and others think have grown so large that they threaten the stability of the financial system.
"I understand the good intentions underlying the House bill, but I feel it does not solve the problems and therefore if we were to go with that bill, we would be missing the last opportunity we will have in many years to really address these problems," Bernanke said.
Congress is considering legislation to tighten oversight of the two companies after multibillion-dollar accounting scandals.
The bill Bernanke took issue with yesterday passed the House last fall. Critics of Fannie Mae and Freddie Mac, including Greenspan, prefer a Senate bill that would force the companies to sell much of their investment holdings.
The Senate bill would also give a new regulator more power to raise the companies' capital requirements and is more precise about when the regulator can step in and close the companies, Bernanke said yesterday.
The Fed chairman was also asked about a proposal in the House bill that would divert a small portion of the companies' profits to fund grants for low-income housing. Conservative lawmakers fought the proposal, arguing the funds would end up going to Fannie Mae's and Freddie Mac's political allies.
Bernanke, however, declined to express an opinion. The proposed fund is "out of my purview," he said.
Fannie Mae and Freddie Mac keep money flowing into the housing market by buying home loans and bundling them into securities to be sold to investors. Over the past decade, they began holding onto more mortgages and mortgage-backed securities for investment purposes, reaching a combined total of $1.5 trillion in 2003.