The Office of Federal Housing Enterprise Oversight, which regulates Fannie Mae and Freddie Mac, is fighting to get more money for fiscal 2000.

The House and Senate are at odds over a $3.5 million increase for the office. The Housing Enterprise Office's budget is submitted to Congress along with that of the Department of Housing and Urban Development, though Fannie and Freddie, not taxpayers, foot the bill.

The Senate Appropriations Committee voted Thursday to limit the office's funding to the 1999 budget level. The House, however, approved the increase on Sept. 9. The bill will now go to conference.

For 2000, the Housing Enterprise Office requested $19.5 million, a 22% increase over this year. Its budget has remained flat, at about $16 million, for the past five fiscal years despite the rapid growth of Fannie and Freddie.

Most of the additional funds would pay for 14 new positions. Two million dollars has been earmarked for two technology initiatives: a data warehouse to help complete the office's risk-based capital stress test and an on-line surveillance system.

The office's risk-based capital rule was a hot topic in Washington and on Wall Street last spring. For months Congress pressured the Office of Management and Budget to release the proposed guideline as investors in Fannie Mae and Freddie Mac waited to see whether it would have a negative impact on the earnings outlook. The government is soliciting public comment on the rule until Nov. 11.

Last Tuesday, Mark Kinsey, acting director of the Housing Enterprise Office, wrote to Sen. Christopher "Kit" S. Bond, chairman of the subcommittee on Veterans Affairs and HUD, asking him to reconsider the budget increase. To deny it "will endanger OFHEO's ability to ensure that Fannie Mae and Freddie Mac are adequately capitalized and operating in a safe and sound manner," Mr. Kinsey wrote.

Fannie and Freddie now manage the credit risk on $2 trillion of residential mortgages, Mr. Kinsey wrote. This amounts to "roughly 45% more than the residential mortgage credit risk managed by the entire bank and thrift industries combined."

Sen. Phil Gramm, R-Tex. and chairman of the Senate Committee on Banking, Housing, and Urban Affairs, argued for the full $19.5 million in a letter to Sen. Bond. "As government-sponsored enterprises, these organizations present risk to the American taxpayer through the implied guarantee of their obligations by the United States Treasury," he wrote.

Similarly, Rep. Richard H. Baker, R-La., warned that denying the increase "would diminish the agency's ability to fulfill its responsibilities and leave taxpayers exposed to greater risk" in a letter to Rep. James T. Walsh, chairman of the House subcommittee on Veterans Affairs and HUD. Rep. Baker is chairman of the capital markets, securities, and government-sponsored enterprises subcommittee.

A spokeswoman for FM Watch, the Fannie and Freddie watchdog, said her group supports the increase. It would provide money "that goes toward protecting taxpayers by regulating Fannie and Freddie on safety and soundess issues," she said. Both Fannie Mae and Freddie Mac declined to comment.

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