Sen. Chuck Hagel, R-Neb., says a "bright-line" test separating primary and secondary market activities is a very important part of his GSE bill that will give the new regulator guidance in keeping Fannie Mae and Freddie Mac from encroaching on the business activities of lenders."That bright line keeps everybody honest, and it helps the regulators do their job," Sen. Hagel said at an America's Community Bankers government affairs conference. The Hagel bill (S. 190) directs the regulator to issue regulations that define the boundary between primary and secondary mortgage market activities. Fannie and Freddie, which are government-sponsored enterprises, are supposed to be secondary market agencies. The language is controversial because it appears to suggest that the GSE regulator could set limits on Fannie's and Freddie's automated underwriting systems. However, the Senate Banking Committee member declined to clarify his intent. "I do not want to get into those specifics now," he told reporters. Sen. Hagel indicated that he wants to hear Fannie and Freddie testify before the committee before making further comments about the bright-line test.

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