Eight years ago, Margaret Dabreau was a single parent earning $20,000 a year as a day-care worker. She signed up for a home buyer's class with the nonprofit ACORN Housing Corp., received down payment assistance to buy an $84,000 rowhouse in the District, and credits the organization for the fact that she is earning equity in the area's housing boom.

Owning a home "makes you feel like you're worth something," said Dabreau, who appreciated the assistance so much she vouched for ACORN Housing in a 1999 briefing for congressional staff.

Dabreau's stake in the home market may be a success when viewed as an economic issue, but it also helps explain the political struggle underway over a low-income housing fund proposed as part of the effort to overhaul regulation of mortgage giants Fannie Mae and Freddie Mac.

Though ACORN Housing helped process Dabreau's mortgage application and received the accolades, the money that helped buy her house came from the Federal Home Loan Bank of Atlanta -- part of a program under which the 12 Federal Home Loan Banks (FHLBs) funnel 10 percent of their annual profit into a low-income housing fund. While Democrats and advocates for low-income housing regard the program as a model for Fannie Mae and Freddie Mac, conservative lawmakers are fighting the idea, arguing that the funds from Fannie Mae and Freddie Mac would benefit groups they consider left-leaning, such as ACORN Housing.

"A lot of these funds are just going to end up in the hands of very politically active groups to come back and lobby us," said Rep. Jeb Hensarling (R-Tex.) in a congressional hearing.

"We are very conscientious about this," responded ACORN Housing's national director of housing counseling, Bruce Dorpalen, who noted that unlike its sister organization, the Association of Community Organizations for Reform Now, the housing program is prohibited from lobbying.

The proposed low-income housing fund has become a central stumbling block in the debate over legislation whose primary purpose is to establish stricter regulations for Fannie Mae and Freddie Mac following a series of accounting scandals.

A House committee has recommended that the companies put 5 percent of their profit into a low-income fund, but conservative lawmakers are trying to have the provision removed. In the Senate, meanwhile, Banking Committee Chairman Richard C. Shelby (R-Ala.) has excluded the fund from his version of the bill, but that could cost the Democratic support needed to assure passage. The Senate bill is to be debated tomorrow in Shelby's committee.

Executives at Fannie Mae and Freddie Mac have not taken a position on the issue.

Though both are for-profit, publicly traded companies, Fannie Mae and Freddie Mac also operate under a government charter to keep the housing markets supplied with cash by purchasing mortgages from banks and other retail lenders -- which can then use the proceeds of the sale to make more loans. By law, the companies are already required to "lead the market" by purchasing loans made to low-income families and other underserved groups. For the past eight years, Fannie Mae has met the affordable housing goals set for it by the Department of Housing and Urban Development, the company has said in a series of advertisements.

In addition, the companies fund affordable housing through their foundations, which recently have together given up to $80 million a year in grants. Fannie Mae also makes debt and equity investments in low- and moderate-income housing through its American Communities Fund.

Critics of the two companies contend that HUD sets the bar too low. A 2001 study by FM Policy Focus -- a group critical of Fannie Mae and Freddie Mac that consists of competitors including Wells Fargo & Co. and General Electric Capital Corp. -- found that the companies lagged behind private banks in financing loans to black and Hispanic home buyers.

Private banks criticize Fannie Mae and Freddie Mac for not buying more of the loans they make to underserved communities. "These are solid gold loans," said Judith A. Kennedy, president and chief executive of the National Association of Affordable Housing Lenders, a group of large financial institutions and nonprofit developers that includes Fannie Mae and Freddie Mac. She said the laws governing private lenders include much tougher requirements to finance low-income housing than those governing Fannie Mae and Freddie Mac.

Forcing Fannie Mae and Freddie Mac to commit a portion of their profit to low-income housing would potentially make hundreds of millions of dollars a year available for projects around the country, at no cost to taxpayers, Kennedy said. Some supporters of the program argue as well that it would be an appropriate way for Fannie Mae and Freddie Mac to use some of the profit they make by virtue of their government charter.

Opponents of the proposed fund, however, are less concerned about the policy impact than about the political one.

Before the accounting scandals that prompted calls for more oversight, Fannie and Freddie Mac were noted for the aggressiveness of their lobbying tactics. Some argue that the housing set-aside would become a "slush fund," supporting community organizations that would then support Fannie Mae and Freddie Mac before Congress.

"There will not be enough regulators on the planet to watch the dollars that are going to spread out to these hungry advocacy groups if we establish this fund," said Tom Feeney (R-Fla.) in a congressional hearing.

In reaction, House supporters of the low-income housing fund have agreed to restrictions on how the money can be used and proposed penalties for misuse. Moreover, they say, similar fears were raised about the FHLB fund when it was created in 1989 but did not come to pass.

Though a limited amount of money is available for the down-payment programs run by groups such as ACORN Housing, the FHLBs' program is tightly regulated and much of it goes to bricks-and-mortar projects, according to a March study by the FHLBs' regulator, the Federal Housing Finance Board. The bank examiners concluded that the FHLBs "have contributed substantially to affordable housing," putting aside more than $2.1 billion over the past 14 years and creating more than 400,000 affordable housing units. In the District, the FHLB of Atlanta has helped finance more than 30 projects that serve families with annual incomes of $44,853 or less.

The home loan banks were created during the Depression. The FHLB program would not be affected by the current legislation.

Local lenders and nonprofit developers that have participated in the FHLB program gave it high marks. "It's a very transparent process. . . . The only complaint is there is not enough money," said Robert Pohlman, executive director of the Coalition for Nonprofit Housing & Economic Development and a member of the Atlanta bank's affordable housing advisory board.

It is also highly decentralized: The 12 home loan banks vet each project, but so do the credit unions, commercial banks and other local lenders whose sponsorship of the projects is also required.

Grants from the home loan bank are limited to $500,000 but can be an important portion of a project's overall funding. "Banks still want to see a deal that is not 100 percent financed by them. The softer money helps you get other money," said Russell Simmons, a former Riggs Bank executive who is now a community development consultant.

A $561,000 FHLB grant, for example, proved critical to the construction of N Street Village off Thomas Circle, which houses a homeless shelter and transitional and permanent housing for women. By providing credibility for the project, the home loan bank's involvement helped developers raise the rest of the $20 million needed to finish it, said N Street officials.

"I have everything I need. Rents go up but not so I have to sweat bullets," said Evelyn Green, who was homeless before she found a place at N Street. She now manages N Street's drop-in shelter and pays $800 a month to live in one of the affordable housing units next door.

The FHLB program is not immune to abuse. Regulators said they found one case in which members of an FHLB advisory council appeared to favor certain housing groups. In another case, a nonprofit housing agency applied for funds using fraudulent cost estimates. The examiners also found a few instances in which recipients of down-payment assistance made too much money to qualify for the subsidy. Regulators, however, said they found fewer than a dozen such cases out of hundreds of grants over five years.

Most projects are monitored closely by several agencies. In the case of N Street, the D.C. Department of Housing and Community Development, which provided a low-interest loan, conducts surprise inspections at least once a year, said Beth Glascock, N Street's director of operations. In the end, home loan bank officials and nonprofit housing groups said, policymakers cannot expect them -- or Fannie Mae and Freddie Mac -- to be affordable housing developers without being affordable housing advocates.

"We wouldn't be as effective if we didn't do outreach efforts," said Lawrence H. Parks, senior vice president for external affairs for the FHLB of San Francisco. "We want to avoid a situation where we have a pot of money and no one to give it out to."

Valerie Woodberry, 39, lives in this group home in N Street Village, which got a $561,000 grant from the Federal Home Loan Banks that lent it credibility and gave it the power to bring in more funding.Evelyn Green is a manager at N Street Village and lives in one of its affordable housing units.