Snow Might Act To Limit GSE Debt If Congress Does Not.

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Author: Swindell, Bill

Finance

Treasury Secretary Snow today did not rule out taking administrative action to limit the debt issuance of Fannie Mae and Freddie Mac if Congress is unable to pass legislation this year to revamp oversight of government-sponsored enterprises that buy and securitize home mortgages. Speaking to the Mortgage Bankers Association's legislative conference, Snow said it is "speculation for the future" if Treasury would step in to limit the debt issued by GSEs if lawmakers cannot agree on a consensus bill. Some analysts have debated whether the Treasury Department has such authority. "I think we have very, very broad authorities here [to regulate GSEs]," Snow said. "I much prefer to see the legislation; I think it is a better framework for dealing with this complex issue." Snow said he is continuing discussions with Banking Chairman Shelby and is optimistic that a GSE bill can advance this year.

Snow has advocated tighter restrictions over the portfolios of Fannie Mae and Freddie Mac, which total about $1.5 trillion in combined assets, because of concern that their size might present a risk to the nation's economy if either company faltered. The White House backs a Senate bill that would create an independent regulator for Fannie Mae, Freddie Mac and Federal Home Loan Banks, and allow the regulator to reduce Fannie's and Freddie's portfolios if they posed a "systemic risk" to the economy. The Senate measure would likely reduce Fannie's and Freddie's holding of mortgages and mortgage-backed securities, which also represent a major source of their profits. "The directive [for the new regulator] should be to continue to review the portfolio holdings and ensure the entities have what they need to carry out their mission, but not more. But that argues against specific quantitative, statutory quotas," Snow said. But critics of the Senate bill, especially some Democrats, contend the measure would implement a rigid system for portfolio holdings. In contrast, a House-passed GSE bill contains a more flexible standard for portfolio limits, allowing the regulator to reduce Fannie's and Freddie's mortgage portfolios if they posed a safety and soundness risk. The White House has opposed the House bill, which passed last year on a 331-90 vote.

Snow also declined to comment on whether he supports recommendations from the president's Advisory Panel on Tax Reform that advocated turning the home mortgage interest deduction into a credit available to all taxpayers and equal to 15 percent of mortgage interest paid. The MBA opposes such a move. Snow said he has placed no timetable on his tax overhaul recommendations to Bush. But Sen. Hillary Rodham Clinton, D-N.Y., told the conference she opposed the mortgage deduction proposal and said it was "stuck in neutral where it belongs." Clinton also plugged her bill to raise the loan limits for home mortgages insured by the Federal Housing Administration, which would allow the program to be more competitive in states such as New York and California that have more expensive home prices.

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By Bill Swindell