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DEBATE ON BILL TO REGULATE FANNIE MAE EXPECTED THIS SUMMER
by Robert Schroeder
U.S. Senate Committee on Banking, Housing, and Urban Affairs
Jun 8, 2006 - MarketWatch - WASHINGTON (MarketWatch) -- The full Senate will likely debate a bill tightening rules on government-sponsored housing giants Fannie Mae and Freddie Mac this summer, the chairman of the Senate Banking Committee said Thursday.

"We believe it'll be on the floor" before the end of the summer, Sen. Richard Shelby, R-Ala., told reporters.

Lawmakers have been concerned about accounting scandals at both Fannie Mae (FNM) and Freddie Mac (FRE) , since both companies buy huge amounts of mortgages and thus prop up the U.S. housing market. Fannie Mae paid a $400 million fine last month to settle charges its executives bent accounting rules to maximize executive bonuses. The company is restating earnings and may wind up taking a loss of about $11 billion.

Shelby spoke to reporters following a committee hearing about four nominees for financial-related government positions, including the office that oversees Fannie and Freddie, the Office of Federal Housing Enterprise Oversight.

Shelby's bill would limit the huge portfolios of mortgage-backed securities that Fannie and Freddie are allowed to hold. The White House backs the legislation.

Earlier Thursday, Merrill Lynch cut ratings on both companies to neutral from buy, citing concerns that increased regulatory scrutiny could restrict them more severely and for a longer term than previously thought. Such a move could harm their long-term franchise values, analysts said.

But the broker told clients Merrill isn't selling the stocks because they believe much of the negative news and the hostile regulatory environment are already priced in.

In testimony before the banking committee, Ofheo director-nominee James Lockhart told senators the regulator needs increased power to tighten reins on the companies.

"The agency must have powers on par with the other financial regulators, which includes budget flexibility," Lockhart said. "Ofheo also needs safety and soundness powers equivalent to the banking regulators, such as flexible capital standards and strong receivership powers," Lockhart told the committee.
 
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