Greenspan Downplays Effect of GSE Portfolio Selloff

Federal Reserve Board Chairman Alan Greenspan says a selloff of Fannie Mae's and Freddie Mac's large mortgage portfolios over time would "pose no significant difficulties" for the markets.The Fed chairman has been urging Congress to pass a regulatory reform bill that requires the two government-sponsored enterprises to substantially reduce the size of their portfolios, which have combined assets of $1.5 trillion. During a speech to an Atlanta Federal Reserve Bank housing conference, Mr. Greenspan warned again that the highly leveraged GSE portfolios present significant risks to the financial system and do little or nothing to improve liquidity in the mortgage market or reduce mortgage rates. "GSE sales of mortgage-backed securities, matched with redemptions of debt, will be readily absorbed in the vast market without significant change in the relative interest rate spreads of such investments," Mr. Greenspan said.