The chairman of the influential Senate Banking Committee is urging regulators to consider lifting caps on the loan portfolios of mortgage repurchasers Fannie Mae and Freddie Mac.

In a statement issued Tuesday, Sen. Christopher Dodd, D-Conn., said Fannie’s and Freddie’s role of helping provide credit to low- and middle-income borrowers is “particularly important,” given the ongoing contraction in the flow of mortgage credit.

“For that reason, it may be appropriate, consistent with safe and sound practices as determined by the regulator, to ease the temporary regulatory cap on Fannie and Freddie’s mortgage portfolio,” Dodd said.

Caps on the lending portfolios of the government-sponsored entities, or GSEs, were put in place in the wake of accounting and management scandals at both companies. Regulators at the Office of Federal Housing Enterprise Oversight (OFHEO) have continued to push for tight controls on Fannie and Freddie’s portfolios, saying the lenders pose a “systemic risk” to financial markets.

Under the terms of a May 2006 consent order, Fannie’s mortgage portfolio assets are capped at year-end 2005 levels, or $727.7 billion. Freddie Mac has voluntarily limited growth in its mortgage loan portfolio to one-half percent per quarter from a mid-2006 baseline of $710.3 billion until it resumes regular financial reporting.

Fannie has reportedly asked OFHEO to consider lifting restrictions on its lending portfolio. Fannie Mae and OFHEO would not comment on the reports.

The House passed legislation in May that would overhaul oversight of Fannie and Freddie, giving a new independent regulator limited authority to set limits on the GSEs’ portfolios. A Senate version of the bill awaits a hearing date before the Banking Committee.

Disagreements over portfolio caps prevented the Senate from passing a GSE reform bill last year. While backers of the GSEs say they reduce the cost of borrowing for average Americans, critics dispute such claims.

Others say Fannie and Freddie helped subprime lenders make questionable loans by buying securities backed by such loans. The GSEs held about $322 billion in the AAA tranches of private-label mortgage-backed securities at the end of 2006, including about $170 billion backed by subprime loans.

Dodd said any increase in the GSEs’ portfolio caps “would have to be used only to purchase loans made consistent with the highest standards of consumer protection. The GSEs should not be used to bring liquidity to loans with abusive terms.”

Dodd also called on Congress to pass legislation modernizing Federal Housing Administration’s loan guarantee programs so more people can access them.

Show Comments Hide Comments


Sign up for Inman’s Morning Headlines
What you need to know to start your day with all the latest industry developments
By submitting your email address, you agree to receive marketing emails from Inman.
Thank you for subscribing to Morning Headlines.
Back to top
Only 3 days left to register for Inman Connect Las Vegas before prices go up! Don't miss the premier event for real estate pros.Register Now ×
Limited Time Offer: Get 1 year of Inman Select for $199SUBSCRIBE×
Log in
If you created your account with Google or Facebook
Don't have an account?
Forgot your password?
No Problem

Simply enter the email address you used to create your account and click "Reset Password". You will receive additional instructions via email.

Forgot your username? If so please contact customer support at (510) 658-9252

Password Reset Confirmation

Password Reset Instructions have been sent to

Subscribe to The Weekender
Get the week's leading headlines delivered straight to your inbox.
Top headlines from around the real estate industry. Breaking news as it happens.
15 stories covering tech, special reports, video and opinion.
Unique features from hacker profiles to portal watch and video interviews.
Unique features from hacker profiles to portal watch and video interviews.
It looks like you’re already a Select Member!
To subscribe to exclusive newsletters, visit your email preferences in the account settings.
Up-to-the-minute news and interviews in your inbox, ticket discounts for Inman events and more
1-Step CheckoutPay with a credit card
By continuing, you agree to Inman’s Terms of Use and Privacy Policy.

You will be charged . Your subscription will automatically renew for on . For more details on our payment terms and how to cancel, click here.

Interested in a group subscription?
Finish setting up your subscription