Greenspan urges strong mortgage regulation
April 6, 2005
Alan Greenspan on Wednesday urged Congress to both enact stronger regulation and limit portfolios in order to lessen the risk that failure of mortgage finance companies Fannie Mae and Freddie Mac could require government bailout.
The U.S. Federal Reserve Chairman told the Senate Banking Committee that strengthened regulations are essential to protect the U.S. financial system, but that stronger regulations alone would not be enough.
He said that it would also be necessary to limit the portfolios of the two companies, currently totaling $1.5 trillion.
In the past, Greenspan has suggested a cap of $200 billion on the portfolios of each of the two government-sponsored enterprises (GSEs).
The chairman of the Fed admitted that his proposals could increase the perception that Fannie Mae and Freddie Mac, the biggest and second biggest buyers of home mortgages in the United States, are extensions of the government, but he said that the risks of not further regulating the two companies were too high not to act.
Greenspan insists that limiting the portfolios in this way would not increase mortgage rates. Fannie Mae and Freddie Mac were created by Congress to inject more money into the home-loan market in the U.S.