The Treasury Department has dropped its insistence on tough portfolio limits on Fannie Mae and Freddie Mac in a last-ditch effort to forge a compromise and pass a GSE regulatory reform bill this year.Treasury's new position would allow the new regulator of housing government-sponsored enterprises to decide (though a public rulemaking process) how large the portfolios should be, based on safety-and-soundness concerns and avoiding system risks, according to a Wall Street Journal report that MortgageWire has confirmed with a Treasury official. "That is real movement by Treasury," said mortgage industry consultant Howard Glaser. But he said the systemic risk language could be "problematic" if it implies that the portfolios should be shrunk. If there is any chance of getting a GSE bill done this year, House and Senate banking committee leaders have to agree on the outlines of a compromise before Congress temporarily adjourns for the elections. That would allow staff and principals to draft a final bill that the Senate could pass when it returns for a lame-duck session and that the House could approve without any changes.

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