Greenspan seeks strong regulation

The Chairman of the U.S. Federal Reserve testified before the Senate Banking Committee Wednesday that it is essential to strengthen the regulations governing the Fannie Mae and Freddie Mac mortgage finance companies, the largest and second largest buyers of home mortgages in the U.S., in order to lessen the risks to the finance system of the country should one of the government-sponsored enterprises (GSEs) fail.

In addition to stronger regulation, Greenspan also said that it is essential to limit the portfolios of assets of the two companies in order to lessen risks. Currently, the portfolios of the two companies total $1.5 trillion; Greenspan has said in the past that each company’s portfolio should be limited to $200 billion.

Greenspan said that limiting the portfolios of the companies in this way would not raise mortgage rates. If these two actions are not taken, Greenspan told Congress, failure of one of the companies could require a government bailout to avert financial crisis.

Greenspan admitted that taking these steps might strengthen the perception that such GSEs are merely arms of the government, but insisted that action is necessary.

Fannie Mae and Freddie Mac were created by Congress to bring more money into the U.S. home-loan market.