Fannie Mae has asked federal regulators to raise a cap on its mortgage loan portfolio that was put in place in the wake of management and accounting scandals — a move President Bush says he won’t consider until Congress passes legislation overhauling oversight of Fannie and Freddie Mac.

“We believe that a moderate increase in the range of 10 percent is appropriate given both current market conditions and the importance of prudent market practice,” Chief Executive Daniel Mudd said in a statement issued Friday. “We believe this action, in conjunction with actions taken by the Federal Reserve Board and others, would help to alleviate the ongoing credit crunch in the markets and bring an additional measure of stability.”

Sen. Christopher Dodd, D-Conn., chairman of the Senate Banking Committee, made a similar request Tuesday, asking the Office of Federal Housing Enterprise Oversight (OFHEO) to consider lifting caps on the loan portfolios of both Fannie and Freddie Mac.

Fannie’s mortgage portfolio assets were capped at year-end 2005 levels, or $727.7 billion, under the terms of a May 2006 consent order. Freddie Mac agreed to a voluntary growth limit on its portfolio of one-half percent per quarter from a mid-2006 baseline of $710.3 billion until it resumes regular financial reporting.

Philosophical disagreements over whether to maintain portfolio caps has delayed legislation that would revamp oversight of Fannie and Freddie, which would create a successor to OFHEO independent of the U.S. Department of Housing and Urban Development, and with authorities similar to those of bank regulators.

The House passed legislation in May that would give the new independent regulator limited authority to set limits on the government-sponsored entities’ (GSEs) portfolios. A Senate version of the bill has yet to receive a hearing by the Senate Banking Committee.

At a press conference Thursday, President Bush was asked whether Fannie Mae and Freddie Mac should be allowed to buy mortgages beyond their current limits or play any additional role that could help revive mortgage finance.

Bush said he wants to see a GSE reform bill approved first.

“As you know, we put up a robust reform package for these two institutions, a reform package that will cause them to focus on their core mission, first and foremost; a reform package that says like other lending institutions, there ought to be regulatory oversight,” Bush said. “And therefore, first things first when it comes to those two institutions. Congress needs to get them reformed, get them streamlined, get them focused, and then I will consider other options.”

Fannie Mae spokesman Brian Faith said a request to lift the cap was submitted to OFHEO last week. Faith said Mudd’s statement on the request, which was released today, was issued to satisfy requests from the media for more information, and was not a response to the president’s comments.

In the statement, Mudd said Fannie Mae “cannot provide a panacea for the ongoing credit turmoil,” but raising the cap “would allow the company to bring much-needed liquidity to housing market segments that need it most urgently.”

Fannie could fund more multifamily loans and single-family mortgages, Mudd said, including mortgages that allow borrowers facing payment shock to refinance.

“Buyers for products like these have all but evaporated in recent weeks, and the cap on our portfolio prevents us from stepping up,” Mudd said. “As lenders and policymakers seek additional sources of liquidity, we are able to fund continuously and focus our investment on housing finance, where funding is currently needed most.”

Mudd said Fannie Mae expects to catch up on its financial filings by February. With remediation of the company’s accounting and internal controls largely complete, he said, “We are on solid footing to take necessary and prudent steps to address current conditions in the secondary mortgage market.”

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