Bernanke: Treasury Could Limit GSE Debt

Federal Reserve Board Chairman Ben Bernanke says the Treasury Department should consider using its power to limit the issuance of corporate debt by Fannie Mae and Freddie Mac if Congress fails to pass GSE legislation."I think it should consider using [the power] if it believes the systemic risk being generated by the portfolios greatly outweigh the benefits that are mandated by its affordable housing mandate," the Fed chairman told a congressional panel. Fannie and Freddie issue debt to finance their mortgage portfolios, which combined have $1.4 trillion in assets. In speaking to the Mortgage Bankers Association on April 26, Treasury Secretary John Snow noted that the Treasury has very broad powers to limit the debt issuance of government-sponsored enterprises. But he stressed that the GSE legislation would create a "better framework for dealing" with the size of Fannie's and Freddie's portfolios. "We have not really approached that question" of limiting debt issuance, he told the MBA members. "We are focusing our efforts on getting the legislation done."