"As the American dream grows, so do we," mortgage finance giant Fannie Mae says of its explosive growth of the past decade.

Now, in the wake of accusations of accounting irregularities that its federal regulator says raise questions about the company's safety and soundness, the nation's financial and housing markets face a different question: Can the American dream grow if Fannie Mae doesn't?

For most of the past decade, Fannie Mae and its cousin and rival Freddie Mac have gone about their business in a way that has been beneficial for U.S. home buyers and profitable for the two companies.

They have borrowed money cheaply, which they can do based on their relationship with the federal government, and used it to buy mortgages that carry higher interest rates. They have held many of those mortgages in their portfolios, profiting handsomely from the interest rate "spread."

But their growth and their increasing dominance of the mortgage market have brought complaints from government officials, who see them as money machines abusing their status. Federal Reserve Chairman Alan Greenspan has said they "automatically profit" from their "subsidized" borrowing rates, while exposing the government to great risk if their business goes sour.

At the same time, competitors have kept up a drumbeat of complaints that the two companies have an unfair advantage in the marketplace.

Earlier this year, Freddie Mac chairman and chief executive Richard F. Syron said that while Freddie Mac's portfolio carries what he called "very low risk," the company "can't and shouldn't" expand it "the way it grew in the past."

"It clearly is both politically and financially . . . not feasible for us to begin to have people thinking that we're a hedge fund and running a pure arbitrage" business, he said, referring to Freddie's ability to profit from the difference in interest rates.

The exposure of accounting irregularities at Freddie Mac last year and questions about Fannie Mae this month have added fuel to the fire, and while a Fannie Mae spokeswoman would not comment directly, it is clear both companies will have to convince regulators that they are not abusing their position.

A key to increased safety at Fannie is to increase its capital, which is in effect a reserve that could be used to cushion unexpected reverses in the marketplace. But to increase capital, the company will have to change strategy, seeking to raise more cash and to reduce the risk that regulators see in its holdings, since the greater the risk, the greater the capital required.

One likely step will be to reduce the number of mortgages it buys and holds. Buying and holding is regarded as risky -- though both firms argue that they essentially remove the risk through hedging -- but profitable when it goes well. Moving away from it would almost certainly cut into profit.

If Fannie Mae and Freddie Mac shrink their balance sheets, the potential impact on housing and related areas theoretically could be major. After all, the two companies between them own or guarantee nearly half the $7.9 trillion U.S. housing mortgage market. In addition, they issue billions of dollars in debt, which finds its way into the holdings of millions of Americans, either directly or through mutual funds or pension investments.

But yesterday executives of groups representing rivals and business partners said they saw little reason for alarm if Fannie and Freddie slow their aggressive growth in mortgage holdings. What they might do is not hold the mortgages but repackage and sell them as mortgage-backed securities, which isn't as profitable but requires them to raise less capital as a cushion against risk.

Mortgage securities traders and strategists said if Fannie Mae does reduce the number of mortgages it buys, it could lead to a small, short-term increase in mortgage interest rates paid by consumers, probably no more than 0.1 percent.

"Ordinarily that kind of increase would not be a decisive factor for home buyers, whether they get a mortgage at 5.4 percent or 5.5 percent," said Arthur Q. Frank, head of mortgage-backed securities research at Nomura Securities International Inc. "Fannie's impact on consumer borrowing rates is positive, but it's just modestly positive."

Just how much Fannie and Freddie save consumers in interest rates has been a matter of intense debate for years. Fannie Mae has long suggested that it helps promote housing by reducing mortgage costs by something like a quarter of a percentage point, equal to 25 basis points.

In "a market where you can see a 10- to 20-basis-point change" in the rates on Treasury securities in two to three days, said Douglas G. Duncan of the Mortgage Bankers Association, a slowdown in Fannie's growth is not likely to "be enough so consumers can see a measurable impact, as differentiated from other market changes."

In addition, several experts said, both companies seem prepared to expand their mortgage-backed securities substantially, especially if the market demands they become greater buyers of loans. That could happen if interest rates change so that holding mortgages becomes less profitable for banks.

Under the federal charters, both Fannie Mae and Freddie Mac are required to take various steps to support the nation's housing markets.

Among these are providing both liquidity to the market and a mechanism for lenders to lay off the interest rate risk on someone else. Generally this means standing ready to buy mortgages for cash when no one else will. And there is wide agreement that they have done that well in recent years.

David A. Lereah, chief economist of the National Association of Realtors, said that remains important. "They do it in time of need when others can't," he said. And while the companies' "safety and soundness come first," he added, "if you are talking about limiting their growth, you need to know who is there to replace their activities."

Syron took note of that role in a recent talk to investors.

Recently, banks and thrifts "have found it attractive" to lend or buy a large volume of mortgages, which they are holding on their own balance sheets, Syron said. "We believe that the willingness of [these] institutions to take on the risk of . . . long-term, fixed-rate mortgages" depends at least in part on their confidence that they would be able to sell them to Fannie and Freddie if they wish, he said.

And so far, there seems to have been little impact on the companies' ability to raise money for their operations.

Sean Horrigan, vice president of government agency bond trading at Legg Mason in Baltimore, said the Fannie Mae scandal would probably have a more sustained impact on the firm's stock than its bonds. This is in part because a reduction in growth will cut into Fannie's earnings, making its shares seem more expensive.

Horrigan said increased government oversight of Fannie Mae could actually boost the mortgage lender's bonds by further reducing the risk on what is already viewed as a safe investment. "Fannie Mae's [bonds] will follow the same path as Freddie Mac's, which have rebounded quite nicely" since Freddie's accounting scandal, Horrigan said. "More regulation is very good" for the bonds.