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Friday, February 18, 2005
Greenspan repeats Fanny, Freddy plea
Federal Reserve Chairman Alan Greenspan called on Congress yesterday to curtail growth in the combined $1.55 trillion loan portfolios of Fannie Mae and Freddie Mac in order to avert financial market instability.
"Going forward, enabling these institutions to increase in size, we are placing the total financial system of the future at substantial risk," he said yesterday in testimony to the House Financial Services Committee. "The risk now is, as best I can judge, virtually negligible."
Congress, reacting to accounting errors revealed by Fannie Mae and Freddie Mac since 2003, is considering creating a tougher regulator with authority to alter capital standards and reject new lines of business at the two government-sponsored enterprises. The companies have more than $1.7 trillion of debt, more than France or Britain.
Greenspan's comments are similar to those he made a year ago to Congress.
Reducing their mortgage holdings may shake the $5.4 trillion market for mortgage securities and possibly boost rates banks can offer to consumers, some analysts said.
"If you do that you are limiting demand from GSEs which have historically been the biggest buyers of mortgage-backed securities," said Kevin Jackson, mortgage analyst at RBC Dain Rauscher Inc. in Chicago.
Fannie Mae and Freddie Mac own or guarantee almost half the $7.6 trillion mortgage market. Congress created them to increase financing available for homeownership by selling bonds and using the funds to get mortgages from banks.
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