White House Questions Value of Fannie, Freddie

The White House on Monday called for a new, stronger regulator for government-sponsored housing enterprises, saying a problem at one of the giant mortgage funders could spread throughout the financial system.

The Bush administration, in an analysis of the U.S. economy that accompanied its budget proposal, questioned the value of the three housing GSEs — Fannie Mae, Freddie Mac and the Federal Home Loan Bank system — given the risks their operations pose.

“The potential for systemic risk arising from the GSEs’ size and their central role in mortgage markets combined with the difficulty of managing the risks inherent in a large mortgage portfolio raise fundamental questions about the value they add … relative to the risks their current operations pose,” the Bush administration wrote.

A new regulator should be created that consolidates Fannie Mae’s and Freddie Mac’s regulator with that of the Federal Home Loan Bank system, the Bush administration said.

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