The Federal National Mortgage Association no longer benefits housing as it once did, but could expose the federal government to billions of dollars in liabilities if it were to suffer a financial crisis, according to the General Accounting Office.

Indeed, GAO concluded that its report, released this week, "raises the basic question of whether Congress should reconsider FNMA's public purpose role." The agency suggested that it has laid the groundwork "on which the Congress could build if it were to" undertake such a reappraisal.

In the meantime, GAO urged Congress to tighten the government's regulation of Fannie Mae by establishing "a permanent oversight function within the Department of Housing and Urban Development or some other federal regulatory entity. . . ."

It also called for legislation to clarify "the regulatory role desired by Congress, particularly as regards aspects of FNMA's operations such as its portfolio operations which expose the federal government to financial risk."

The report concluded that the performance of HUD, which under current law watches over Fannie Mae but has no unit specifically assigned to the task, "has fallen short of what we believe Congress envisioned. . . . "

In a letter to GAO, David O. Maxwell, Fannie Mae's chairman, called the report "valuable" and "professional." But he disagreed with both the agency's view of Fannie Mae's benefits to the public and its recommendations for increased governmental oversight.

To focus on the kinds of benefits that Fannie Mae provided in the 1970s and before "is like assessing IBM's role in today's information services market by discussing its punchcard business," he wrote.

With the "dramatic . . . changes" that have taken place in the primary mortgage market in recent years, "that market now looks to Fannie Mae to do far more" than merely boost housing during economic downturns and assist low- and moderate-income housing, Maxwell said.

He also termed the oversight recommendations "contrary to what is needed now if Fannie Mae is to function effectively as a privately managed company in a rapidly changing environment."

Originally a wholly owned government corporation, Fannie Mae was created by Congress in 1938 in the aftermath of the collapse of the housing industry. One of the principal reasons for its creation was to provide, through its purchases of mortgages, a reliable source of funds for the housing industry.

Through the years this "countercyclical" role in housing finance -- providing funds when other sources ran short -- was a major benefit provided by Fannie Mae. It bought FHA-insured, and later VA-guaranteed, loans, thus enhancing those programs.

Fannie Mae "was originally the only truly national buyer of home mortgages and helped channel funds to geographic areas experiencing credit shortages. . . ," the GAO report noted.

In 1968, Congress reconstituted Fannie Mae into its present form -- a federally chartered privately owned corporation. At the same time it created the Government National Mortgage Association for the FHA and VA markets.

During the 1970s, the firm operated profitably in its new form. But with the deregulation of financial markets and the runup in interest rates, the situation changed. The yields on the mortgages in Fannie Mae's portfolio fell below the cost of the short-term debt it employed to finance them. The company plunged into the red, losing $190.4 million in 1981 and $104.9 million in 1982.

Fannie Mae has taken steps to improve its position, aggressively pursuing fee income, purchasing higher-yielding loans, including second mortgages, and moving into mortgage-backed securities, which pass interest-rate and credit risks on to investors.

But after turning a profit in 1983, Fannie Mae again showed a loss last year as interest rates rose. It borrowed $47.9 billion in 1984 -- second only to the federal government -- and "at the end of 1984 FNMA's borrowing costs still exceeded the yield on its loan portfolio -- 11.6 percent versus 10.9 percent, respectively," GAO said.

Fannie Mae's net portfolio amounted to $84.4 billion as of December, it said.

The agency also said that Fannie Mae's foreclosure losses have risen sharply as a result of its search for higher yields -- which often entails more risk -- coupled with slow rises in house prices. Foreclosure losses amounted to $1.6 million in 1982 and $87.3 million last year.

"Most important, however," the report said, "is that FNMA's recent experience and its outlook for the future have raised questions regarding the risks it faces in the marketplace. Due to FNMA's special relationship with the federal government . . . and the potential effects of a FNMA financial crisis on the credit markets, the financial community expects that the federal government would step in and assist FNMA in a financial crisis.

"Although not required to assist FNMA by law," it added, "this potential can be thought of as a contingent liability for the federal government."

GAO did say that Fannie Mae's recent steps "may have reduced the likelihood" that the government will be called, but they also have "increased the magnitude" of the aid that would be needed in a crisis.

The government is exposed to these risks while public benefits from the firm "appear to have declined," the report said. It pointed to GNMA's handling of the FHA and VA programs, and to Fannie Mae activity in the last housing downturn that "did not appear to be countercyclical."

It said that HUD officials responsible for monitoring Fannie Mae "are unsure of the nature of their role," and they "do not believe that the department has the capacity or expertise to perform certain functions that might be expected of a financial institution regulator . . . ."

Maxwell, in his response, said that while the report had "correctly characterized Fannie Mae's underlying business difficulties," the firm "has come far from the situation of 1981 when the corporation was losing $1 million every working day."

He argued that the nature of Fannie Mae's countercyclical function has "shifted from augmenting the availability of funds to reducing the relative cost of those funds. During future 'credit crunch' periods, deregulated thrifts will have to rely almost exclusively on uninsured high cost deposits to fund mortgage demand. Fannie Mae, on the other hand, can complement the thrifts by accessing 'wholesale' markets much more inexpensively and across a wider range of maturities and investors."

Maxwell called the recommendation for additional oversight "troubling."

"We believe HUD has performed this function adequately over the last few years," he said.

Maxwell also said, "The recommendations run counter to expert thought on effective regulation. That thinking holds that government regulation, if it is too intrusive on a company's business operational decisions, is likely to hurt a company's performance rather than enhance it."