Treasury officials are starting direct talks with Fannie Mae, Freddie Mac, and the Federal Home Loan Banks regarding the Treasury Department's process for approving the issuance of debt by the three government-sponsored enterprises.Senior level meetings are scheduled for the weeks of July 10 and July 17 with executives of Fannie, Freddie, and the Office of Finance, which issues consolidated debt obligations for the 12 FHLBanks. The meetings were first reported by the Wall Street Journal. Treasury Under Secretary Randal Quarles served notice four weeks ago that the automatic approval of GSE debt issuance is under review in light of the accounting scandals at Fannie Mae and Freddie Mac and problems with their accounting systems, risk management, and internal controls. Fannie and Freddie issue corporate debt mainly to finance their giant mortgage portfolios, which have $1.45 trillion in assets combined. The Bush administration supports legislation to reduce those portfolios. Limiting their debt issuance could effectively reduce or cap the portfolios. The FHLBanks issue debt mainly to finance loans to their member banks and thrifts.

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