A new GSE regulator needs "precise and clear" guidance from Congress that Fannie Mae and Freddie Mac should stick to securitizing mortgages rather than acquiring large portfolios of mortgage-backed securities, according to Federal Reserve Board Chairman Alan Greenspan."The purpose of this guidance, however, is not just to limit the GSEs' portfolios, but to firmly anchor the GSEs' investment portfolios to their public purpose," the Fed chairman says in a letter to Sen. John Sununu, R-N.H. The long-time critic of the two government-sponsored enterprises argues that Fannie and Freddie should be focused on securitizing mortgages that will make mortgage credit more widely available. "These large portfolios, while enriching GSE shareholders, do not meaningfully benefit homeowners, and do not facilitate secondary liquidity," he says. Mr. Greenspan is leaving the Fed on Jan. 31 after 18 years as chairman, but he is still throwing his weight behind a Senate GSE regulatory reform bill (S. 190) that has portfolio limits, while warning that a House-passed GSE bill would "exacerbate the potential systemic risk problems associated with the GSEs' large portfolios."

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