Fannie Mae, Freddie Mac face reviews over accounting

WASHINGTON — The Bush administration is starting special reviews of the financial operations of mortgage giants Fannie Mae and Freddie Mac.

The two government-sponsored companies, both of which have been roiled by accounting scandals in recent years, already have been under pressure from lawmakers and regulators who want their combined multitrillion-dollar mortgage holdings to be reduced. The administration has long been critical of the two companies, and officials have pointed to the accounting scandals to bolster their case that the massive mortgage portfolios are improperly managed and pose a risk to the financial system.

On Tuesday, two officials — Housing and Urban Development Secretary Alphonso Jackson and Randal Quarles, Treasury undersecretary for domestic finance — disclosed the new reviews by their departments in separate appearances before groups in Washington.

Quarles said he had directed Treasury staff to review the department’s process for approving the massive mortgage-related debt issued by Fannie Mae and Freddie Mac.

Some Treasury officials have taken the view in recent years that the department has the authority to limit that debt.

The two companies were created by Congress to pump money into the home-mortgage market by buying home loans from banks and other lenders and bundling them into securities for sale on Wall Street. They have grown dynamically in recent years and now finance or guarantee some $4 trillion of home mortgages, representing about one-half of the single-family mortgages in the country.

“The time is right for Treasury to review its debt approval process to ensure that we continue to act as appropriate custodians of the power that Congress gave us when the charters of Fannie Mae and Freddie Mac were created,” Quarles said in a text of his speech to the Women in Housing and Finance group. “I have asked the Treasury staff to undertake such a review to ensure that the process by which we exercise this responsibility is appropriate in light of all the circumstances.”