Lockhart: GSEs Must Remain Market Force

Fannie Mae's and Freddie Mac's portfolios should be reduced, but the two government-sponsored enterprises need to remain a market force so they can provide liquidity during market upheavals, according to Office of Federal Housing Enterprise Oversight Director James Lockhart."What they really need in my mind is a capacity to increase the portfolios when there is an emergency in the marketplace to provide liquidity," Mr. Lockhart said on a Nightly Business Report television interview on PBS. Both GSEs have a $730 billion mortgage portfolio, and they could operate with "significantly less" assets, the OFHEO director said. However, Mr. Lockhart said he is not ready to suggest what the optimum size should be. Congress is deadlocked over the issue of portfolio limits and has stalled passage of a GSE regulatory reform bill. The Bush administration wants a bill that substantially reduces the GSEs' portfolios, which Fannie and Freddie oppose. The OFHEO director may be trying to find some middle ground. "They don't need these large portfolios to provide the stability the market needs today," Mr. Lockhart said. "What they need to do is to have the ability to grow when they really need to -- to provide liquidity and stability to the market."