The Bush administration's new budget relents on the issue of portfolio limits for Fannie Mae and Freddie Mac, but calls for greater "clarity" on where the primary mortgage market begins and ends.Released Feb. 5, the 2008 budget says "technological advances" have blurred the line between the primary and secondary markets, arguing that a "new level" of clarity "is required to establish permissible activities" under their charter acts "including the development of intellectual property." Up until last year, the White House had hoped to cap, or even shrink, the $1.4 trillion in on-balance-sheet holdings of the two government-sponsored enterprises. In the face of congressional -- and GSE -- opposition, the budget indicates that the White House will settle for GSE legislation that creates a "world class regulator" with the ability to "mitigate the risks" posed by their retained portfolios. The administration said it believes Fannie and Freddie pose a systemic risk to the U.S. financial system because their combined mortgage-backed securities and debt -- held by an array of financial institutions -- total $5.2 trillion, "higher than the total publicly held debt of the United States."

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