Fannie Mae has to "freeze" the size of its giant mortgage portfolio at $727 billion under an agreement with the Office of Federal Housing Enterprise Oversight and the limit could be in place for several years, according to the regulator.The OFHEO's report on its investigation into Fannie's accounting problems found that the GSE neglected its accounting systems, internal controls and risk management as senior management manipulated earnings and collected large bonuses. OFHEO acting director James Lockhart said Fannie has to fix its systems and controls before it grows the portfolio, which is a major profit center for the government sponsored enterprise. The agreement limits the portfolio at its December 31, 2005 level ($727.2 billion). As of March 31, the investment portfolio had $721.1 billion in assets. Meanwhile, some are looking at OFHEOs' action as an icebreaker that might make it easier to reach a compromise on portfolio limit and facilitate passage of a GSE regulatory reform bill in the Senate. Mortgage Bankers Association senior vice president Kurt Pfotenhauer noted that OFHEO has imposed a "de facto" portfolio limit by setting conditions on growth. "I am beginning to wonder if this approach could serve as a model for a compromise in the Senate," the MBA lobbyist said.

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