Frank blasts Fed on housing slump

Representative Barney Frank said the Federal Reserve is motivated by ideology in its policy toward Fannie Mae and Freddie Mac, while overlooking "the facts" of the housing slump, according to a letter to Fed Chairman Ben Bernanke.

The Fed's opposition to Democrats' calls for an increase in the portfolio limits for the mortgage finance companies is "an example of the triumph of a fairly rigid ideology," Frank, a Massachusetts Democrat and chairman of the House Financial Services Committee, said in a Sept. 7 letter released today.

Bernanke said in an Aug. 27 letter that relaxing portfolio limits on the combined $1.4 trillion in mortgage assets of Fannie Mae and Freddie Mac isn't necessary for enabling the companies to help stem foreclosures. The two companies are the largest sources of money for U.S. home loans, owning or guaranteeing about 40 percent of the $10.9 trillion residential mortgage market. Federal caps on the companies' holdings in mortgages and mortgage bonds "need not be lifted to allow them to accommodate new borrowers," Bernanke said in his letter last month to Senator Charles Schumer, a New York Democrat.

Bernanke's view is in line with the companies' regulator and with President Bush. The Office of Federal Housing Enterprise Oversight on Aug. 10 rejected requests by Frank, Schumer and other Democratic lawmakers to allow the government-chartered firms to buy more home loans to ease a credit crunch in the mortgage market. The Democrats have called for relaxing the restrictions, saying the companies could fill a gap left by investors who fled the market. Frank said his major concern is the insistence of the Fed and the Bush administration that the constraints on the companies' mortgage assets "must be treated as unchangeable even in the face of events that argue for some flexibility," Frank said in his letter.

Ofheo imposed the limits last year after Fannie Mae and Freddie Mac disclosed accounting misstatements of $11.3 billion. To have the ceilings lifted, the companies must complete an overhaul of accounting and governance and restore timely financial reporting, the agency said.