Fannie Mae and Freddie Mac are under fire again - this time for selling debt securities to retail investors.

Critics claim the move directly competes with the banks, thrifts, and credit unions that rely on retail deposits for their funding. By targeting consumers, the government-sponsored enterprises are offering a savings vehicle that competes directly with products like certificates of deposit, the critics argue.

"With these new programs, Fannie is competing directly with every bank and savings company in the country," said Michael House, executive director of FM Watch, a group of mortgage bankers and insurers dedicated to keeping a tight rein on Fannie and Freddie.

Joseph R. Ficalora, chairman of the $8.6 billion-asset New York Community Bank in Westbury and vice chairman of the Community Bankers Association of New York, said he is also concerned that the GSEs are trying to expand their political as well as customer bases.

"This is an overt example of mission creep that creates a more difficult entity for the government to control," he said Tuesday. "Not only are they building a customer base to sell future products to, they are creating a population of political constituents."

Fannie and Freddie officials denied the accusations.

"This is something that has a lot more risk for the investor" than a bank deposit product, said John Radwanski, senior portfolio director at Freddie. "It is a bond. This is a totally different product than a deposit."

"The investment notes compete in the market with other bonds, not with other bank deposit instruments," said Fannie spokeswoman Janice Daue. "Very few bank deposits mature in more than two years, and most reprice in under 18 months."

Yet Mariel Donath, president of the New York community bankers group, disagreed that consumers will differentiate among the products. "Whether they get interest on a bond or on a CD, I don't think they would make that kind of distinction," she said.

Retail investors have been able to buy Fannie and Freddie debt since at least 1995, but in the last couple months the GSEs have launched programs to pursue the market more aggressively.

Fannie began offering its Investment Notes last month, and Freddie launched its FreddieNotes, in April. Both products, sold in increments as small as $1,000, are triple-A-rated senior debt products issued on a weekly basis with maturities from one to 30 years.

Fannie's notes are offered through Merrill Lynch & Co., which serves as the principal dealer for the debt, and 21 other institutions, including Citigroup Inc.'s Salomon Smith Barney, Charles Schwab Corp., and Morgan Stanley Dean Witter & Co. Freddie's are offered through the LaSalle Broker-Dealer Services, a division of ABN Amro Inc.

A Fannie Mae spokesman said that previously debt sales to personal investors had to be arranged one sale at a time. Investment Notes have opened up the sales to dozens of dealers, who can make many sales at once, he said.

The Office of Federal Housing Enterprise Oversight, the agency that monitors the financial safety and soundness of both Fannie and Freddie, has investigated and signed off on the programs. "We don't have a problem with this," OFHEO spokeswoman Stefanie Mullin said.

Ms. Daue said Fannie sold nearly $70 million of the notes in the first week they were offered and an average of $50 million a week since. The average personal investor buys $60,000 of the notes at a time, she said. Mr. Radwanski estimated that Freddie has sold $1.3 billion of the notes to date.

The GSEs defend the new products as a way to diversify their capital and provide competitive returns to investors. Mr. Radwanski said they are designed to make the GSEs' debt more accessible to personal investors. "This is basically to increase awareness that Freddie offers this paper and to offer consistency to this market."

Both companies post weekly announcements of offerings on their Web sites.

"The investment notes program is a way to make the retail offerings more predictable and systematic," said Fannie spokeswoman Janice Smith. "Investors now know about the offerings through these postings, even though the structure of the offerings may change from week to week."

Bert Ely, an independent industry consultant in Alexandria, Va., said that by stepping up debt sales to consumers, the GSEs are inviting more political flak.

"I think that this, politically, was not a bright thing for Fannie to do," he said. "It further undercuts the argument that they are not backed by the government. Congress is not about to let Grannie and Aunt Bertha lose money in buying Fannie investment paper."

Fannie and Freddie have been under the gun politically for about two years, as various groups have alleged that their government sponsorship gives them an unfair advantage.

Mr. House complained about the debt sales in letters sent June 19 to Senate Banking Committee Chairman Paul Sarbanes and Federal Deposit Insurance Corp. Chairman Donna Tanoue.

In the letter to Ms. Tanoue, Mr. House argued that consumers could come to prefer Fannie's debt to traditional certificates of deposit, "believing that they can hold $100,000 or more in such funds without incurring the risks associated with uninsured deposits."

He also argued in an interview Monday that because Fannie and Freddie are exempt from the privacy standards of the Gramm-Leach-Bliley Act of 1999, they could launch aggressive marketing campaigns for their products.

"They can target exactly the individual investors to whom they want to sell," he said. "They know what kind of assets they hold. They can use that information. Nobody else has this ability. It's a hell of an advantage."

Ms. Daue said she didn't see how the consumer privacy issue was connected what Fannie is doing.

"This is just another tool for us to use to issue our debt," she said. "The traders have told us that investors like this product. The concerns people have are unfounded."

A Fannie spokesman said that while the GSEs are exempt from Gramm-Leach-Bliley's privacy provisions, the brokerage firms that would sell the bonds are not. Because of this, the consumers, who are considered customers of the brokerage firms, are protected under the law, he said.

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