Mortgage Backers Could Lose Credit

The Treasury Department is willing to discuss with Congress whether the government should drop its credit lines to Freddie Mac and Fannie Mae, the two largest buyers of U.S. mortgages, a Treasury official said Wednesday.

“If Congress wants to change that statute, that is one of the various issues we are happy to talk to Congress about,” Wayne Abernathy, Treasury’s assistant secretary for financial institutions, said in an interview.

San Francisco-based Wells Fargo & Co. and American International Group Inc. are among competitors that have said Fannie Mae and Freddie Mac enjoy lower borrowing costs and other unfair advantages because the Treasury Department can shield the government-chartered companies from default with its power to buy $2.25 billion of their securities.

Fannie Mae and Freddie Mac have faced greater scrutiny from regulators and Congress after Freddie Mac said it understated earnings by about $4.5 billion for the last three years.

The companies only last year agreed to register their shares with the Securities and Exchange Commission. Fannie Mae and Freddie Mac, which own or guarantee 42% of the $7-trillion U.S. mortgage market, still don’t register their debt.

The Bush administration has proposed the Treasury Department as the new regulator for Fannie Mae and Freddie Mac, which were created by Congress to promote affordable home loans. Legislation to shift supervision to the Treasury from the Housing and Urban Development Department has stalled because of disagreement over which agency will oversee new products and lending programs.

The credit lines have never been tapped, and Abernathy said no lawmaker had suggested they be severed.

“He was not advocating it,” a Freddie Mac spokeswoman said. In Congress, “the discussion is around strengthening oversight but not changing the charter.”

Abernathy’s comments show the Treasury Department is pushing harder to “get a deal on a regulator,” said Lehman Bros. analyst Mukul Chadda. “I don’t think there’s a chance the line of credit will be canceled.”

Freddie Mac shares fell $1.50 to $57.03 and Fannie Mae shares dropped $1.41 to $72.75, both on the New York Stock Exchange.