The Treasury Department has served notice that its automatic approvals of Fannie Mae's and Freddie Mac's debt issuance is now under review in light of the accounting scandals at the two GSEs and continued weaknesses in their accounting systems, risk management practices, and internal controls."[T]he time is right for Treasury to review its debt approval process to ensure that we continue to act as appropriate custodians of the power that Congress gave us when the charters of Fannie Mae and Freddie Mac were created," Treasury Under Secretary Randal Quarles told a Women in Housing and Finance meeting in Washington. The government-sponsored enterprises issue corporate debt mainly to finance their giant mortgage portfolios, which combined have $1.45 trillion in assets. Limiting GSE debt issuance could effectively reduce or cap the growth of their portfolios. "Since we have not seen any specific proposal to change that process, it would be speculative to comment," a Freddie Mac spokeswoman said. Fannie Mae declined to comment. Mr. Quarles reaffirmed the Bush administration's support for GSE regulatory reform legislation that would require Fannie and Freddie to shrink their portfolios. He pointed out that Fannie has reduced the size of its portfolio by nearly $200 billion with no discernible impact on the housing market.

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