House debates bills to rein in Fannie Mae, Freddie Mac

The House debated legislation Thursday that would tighten federal oversight of the two largest buyers and guarantors of home mortgages, Fannie Mae and Freddie Mac.

The bill is the product of an earlier compromise between majority Democrats and the Bush administration. It also has attracted support from a number of House Republicans.

But the bill was reshaped in a way that lessens the power of the new federal regulator of Fannie Mae and Freddie Mac over their massive mortgage holdings, compared with an earlier version that moved through the House. The mortgage portfolios of the two government-sponsored companies now are worth a combined $1.5 trillion, and the administration has insisted that the new regulator should have the discretion and authority to reduce them.

A bipartisan amendment adopted by voice vote would put some restrictions on that authority.

The overall legislation provides for stricter federal oversight of the two companies, which together finance or guarantee more than three-quarters of U.S. home mortgages.

The multibillion-dollar accounting scandals that rocked Fannie Mae and Freddie Mac in recent years brought demands for tighter government supervision and cuts in their mortgage holdings.

A partisan split was evident during debate over creating a housing aid fund to be financed by the two government-sponsored companies.

About $500 million to $600 million a year from the companies’ profits would go to the five-year fund. It would be used for construction and rehabilitation of housing for low-income people.

In the first year, the money would go for housing for victims of hurricanes Katrina and Rita.

Diverting company profits to the housing fund would impose a “mortgage tax” on every home loan financed by Fannie Mae and Freddie Mac, Republicans said, thereby making middle-class homeowners pay for the fund.

In addition, the White House is concerned the fund could be “susceptible to political influences that could compromise the goals of assisting as many low-income families in need as possible.”

Republicans say no money from the fund should go to community groups that run voter registration drives.

A corresponding bill in the Senate does not mandate creation of a housing fund.

Fannie Mae and Freddie Mac were created by Congress to pump money into the mortgage market by buying home loans from banks and other lenders, to keep interest rates low and make home ownership affordable for low- and moderate-income people. They bundle the mortgages into securities for sale on Wall Street.