A recent risk-based capital proposal would not mar Fannie Mae's profitability but could hurt small lenders, a company official said Thursday.

"Even if the regulation doesn't change at all," said Timothy Howard, chief financial officer at Fannie Mae, "Fannie Mae would be able to adapt to it with no measurable impact on our (earnings per share) growth."

The proposal, however, could have "significant negative effects" on small lenders, mortgage insurers, derivatives traders, and others who deal with Fannie Mae, he told Wall Street analysts on a conference call. For instance, Fannie Mae would have to reduce its purchase of mortgages from small lenders, Mr. Howard said.

He said he expects the Office of Federal Housing Enterprise Oversight will give in to public pressure and substantially revise its risk-based capital proposal, which was sent to Congress on March 26. "We believe we will end up with a more useful standard," he said.

OFHEO's proposal relies on stress testing to determine capital requirements. These tests would be conducted by complex computer models that would mimic the effect of adverse economic and market changes on Fannie Mae and Freddie Mac.

Directly contradicting claims made last week by OFHEO's acting director, Mark A. Kinsey, Mr. Howard said the proposed rule would stifle innovation, micromanage how Fannie Mae does business, and derail its affordable housing mission. He also said OFHEO's proposal gives Fannie Mae less discretion on how to meet capital requirements than bank regulators give depository institutions.

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