Budget Questions Role of Fannie, Freddie

The Bush Administration, in its new fiscal budget, questions the role Fannie Mae and Freddie Mac play in the mortgage market, citing the "potential for systematic risk" arising from their size.Although the 2006 budget offers no new revelations on how the White House views the GSEs, it's clear the Administration is in favor of stricter controls on how the two operate and reiterates the Federal Reserve's position that perhaps statutory limits should be placed on how much debt Fannie, Freddie and the Federal Home Loan Banks are allowed to issue. Quoting the Fed, the White House says GSE securitization activities, "have a relatively small effect on mortgage interest rates -- just a few dollars a month on the average mortgage." Fannie and Freddie have maintained that their role in the secondary market provides liquidity and reduces interest rates for conventional borrowers.