Higher Caps Urged For Fannie, Freddie

By David S. Hilzenrath
Washington Post Staff Writer
Saturday, August 18, 2007

Leading Democrats pressed their case yesterday to give Fannie Mae and Freddie Mac a larger role in the troubled mortgage markets, arguing that the two companies should be allowed to buy bigger mortgages and more of them.

The market upheaval has shifted a long-running discussion of the government-sponsored finance companies from the esoteric edges of inside-the-Beltway policy arguments to the forefront of the debate over how Washington should respond to a credit crunch. It has given supporters of Fannie Mae and Freddie Mac fresh ammunition to challenge those who think the companies should be kept on a tighter leash.

Christopher J. Dodd (D-Conn.), chairman of the Senate Banking Committee and a candidate for president, told reporters that regulators should raise limits on the companies' mortgage investments by 5 percent so they can pump more money into the housing finance system. Together, Fannie Mae and Freddie Mac hold about $1.4 trillion of mortgages and securities backed by mortgages.

Dodd was elaborating on a position he staked out days earlier and was firing back at President Bush, who last week said Fannie Mae and Freddie Mac should be reformed before the government considers loosening their restraints.

Dodd said Congress can't pass a reform bill fast enough to deal with the crisis at hand.

The Bush administration wasn't budging.

The Treasury Department doesn't believe increasing the caps on the companies' investment portfolios would have a major impact on the segments of the market that are most stressed, Treasury spokeswoman Jennifer Zuccarelli said. She was referring to jumbo loans, those exceeding $417,000, which the companies are prohibited from buying, and subprime mortgages, which are for borrowers with blemished credit records.

The administration and members of Congress have been working for years on a bill to strengthen regulation of Fannie Mae and Freddie Mac, both of which are recovering from accounting scandals and problems with their internal controls. The administration says a bill passed by the House this year doesn't go far enough, and Dodd's committee has yet to take up the legislation.

Meanwhile, Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, urged the Senate to raise the $417,000 ceiling. The House bill would do that, but, Frank said, it wouldn't raise it enough. Frank was joined by Rep. Gary G. Miller (R-Calif.), whose state includes some of the nation's most expensive real estate markets.

There is no indication that the turmoil in the markets has narrowed the gap between policymakers who say Fannie Mae and Freddie Mac can play an important role in the markets and those who say the companies are so big that they pose risks to the financial system.

"What's happened in the marketplace is likely to lead both sides to dig in their heels a bit," said Howard Glaser, a mortgage industry consultant. "Both sides see what they want to see in the current market environment."

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