Greenspan calls for curbing growth of home mortgage giants - update 1

04/07/05 - newratings.com

NEW YORK, April 7 (newratings.com) – The US Federal Reserve Chairman, Alan Greenspan, Wednesday highlighted the need to restrict the growth of home finance companies Fannie Mae (FNM) and Freddie Mac (FRE), in order to preserve the safety and soundness of the country’s financial system. The warning comes at a time when the two companies have been accused of several accounting irregularities.

In his remarks to the Senate Banking Committee, Greenspan highlighted the need to restrain the size and growth of the two mortgage giants. Fannie Mae is the number one home mortgage finance company in the US and is followed at the number two position by Freddie Mac. The two companies were created by the US Congress to pump funds into the country’s home mortgage market. Greenspan said that regulation without specific growth constraints could actually worsen the dangers posed by the two companies. According to Fox News, Greenspan said that any crisis in the two mortgage giants could have a disastrous spillover impact on the country's overall banking system. Meanwhile, Louisiana’s Republican Representative, Richard Baker, proposed a new bill on Tuesday, calling for a new and stronger regulator with the authority to force the two mortgage finance companies to cut their portfolios.