Bernanke: Limit GSE Portfolios to AH Mortgages

If Congress limited Fannie Mae's and Freddie Mac's portfolio investments to affordable housing mortgages, it would reduce systemic risk and ensure that the two government-sponsored enterprises are providing a clear public benefit, according to Federal Reserve Board Chairman Ben Bernanke."Tying the portfolios to a purpose that provides measurable benefits to the public would help to ensure that society in general -- not just GSE shareholders -- receives a meaningful return for accepting the risks inherent in the portfolios," the Fed chairman said. "Moreover, defining the scope and purpose of the portfolios in this way would reduce the unbridled growth in those portfolios while avoiding the imposition of arbitrary limits or caps." Each of the two GSEs has a $700 billion portfolio with a significant portion invested in highly rated subprime mortgage securities. Mr. Bernanke told the Independent Community Bankers of America annual convention that such investments do little to enhance liquidity for mortgages extended to below-median-income homebuyers that banks try to serve through their Community Reinvestment Act programs. Refocusing the GSE portfolios to invest in affordable housing mortgages would create a new secondary-market outlet for those CRA-originated mortgages, the Fed chairman said.