White House Could Use Back-End Route to Limit GSE Debt.

WASHINGTON -- The Bush administration is threatening to control the debt issuance of Fannie Mae and Freddie Mac - indirectly limiting their portfolio growth - if Congress does not pass strong GSE regulatory reform legislation.

The Treasury Department has maintained for some time that it has the legal authority to regulate the two government-sponsored enterprises' issuance of corporate debt, which is mainly used to finance their massive portfolios.

A recent report by the Office of Federal Housing Enterprise Oversight alleging massive accounting fraud at Fannie has prompted the administration to raise the stakes in its effort to break a congressional stalemate over GSE legislation.

GSE supporters claim the administration is playing politics, using all its powers to secure passage of a bill that empowers a new regulator to limit or reduce the size of Fannie and Freddie's portfolios, which combined have $1.45 trillion in assets.

"They are attacking from all sides with every gun they have. This is a political effort," said Jerry Howard, executive vice president and chief executive of the National Association of Home Builders.

Treasury undersecretary Randal Quarles served notice last week that his staff is reviewing its approval process for debt issuance in light of the accounting scandals at the two GSEs and continued weaknesses in their accounting systems, risk management practices and internal controls.

"The time is right for Treasury to review its debt approval process to ensure that we continue to act as appropriate custodians of the power that Congress gave us when the charters of Fannie Mae and Freddie Mac were created," Mr. Quarles told a Women in Housing and Finance meeting.