For all the fire generated by the Congressional Budget Office's report on high profits and conflicting interests at Fannie Mae and Freddie Mac , Wednesday's hearing on the issue was a pretty tame affair.

Democrats backed the government-sponsored mortgage agencies to the hilt, arguing that low-income and minority Americans would find it harder to buy homes without Fannie Mae's and Freddie Mac's help.

"As an academic exercise, it is interesting to theorize about the results of privatizing Fannie Mae and Freddie Mac, but my primary concern is not theoretical but practical," said Rep. Maxine Waters, D-Calif. By that test, privatizing the mortgage agencies would be bad public policy, Ms. Waters said.

In a congressionally mandated report released last month, the budget office argued that taxpayers would be better served if housing subsidies were funneled directly to low-income borrowers, rather than through Fannie Mae and Freddie Mac. The current setup pits agency shareholders against taxpayers and led Fannie and Freddie to retain one-third of their $6.5 billion implicit government subsidy in 1995, the budget office found.

Rep. Richard H. Baker, who served as chairman for the hearing before the House Banking Subcommittee on Capital Markets, Securities and Government- Sponsored Enterprises, was more receptive to the budget office's point of view.

First, taking aim at Fannie Mae's description of the budget office report as the work of "digit-heads" and "pencil-brains," Mr. Baker congratulated the budget agency on its "professional" report. Fannie Mae's attacks on the budget office were reported in news articles in The Washington Post and The New York Times.

In his questions, Mr. Baker underlined his safety concerns about Fannie Mae and Freddie Mac's agencies' growing mortgage portfolios - a concern shared by the budget office, which said the agencies are turning to this riskier but potentially more lucrative strategy to keep their profits growing in a market they already dominate.

Mr. Baker also echoed the budget office's concern about the government's capacity to oversee such complicated financial institutions.

In an earlier hearing, he had asked the Office of Federal Housing Enterprise Oversight, which supervises Fannie and Freddie, how Fannie and Freddie would be affected by sudden and continuous increases in interest rates.

Mr. Baker told budget office director June O'Neill that the oversight office had been unable to answer his question, and posed the same question to her.

When Ms. O'Neill said she too could not help him, Mr. Baker fretted, "If the reporting agencies and the principal regulator do not have the ability to make that determination, how can we assure our taxpayers that we are doing our job?"

"It's very difficult to do that, and I think OFHEO is hard-pressed to fulfill these requirements," Ms. O'Neill said.

Taking aim at the agencies' low-income performance, Mr. Baker also criticized Fannie Mae and Freddie Mac for raising their loan limit this year. Rep. Rick Lazio, R-N.Y., backed Mr. Baker, characterizing the agencies' decision as a "bonehead political move."

In a prepared statement handed out to reporters, Fannie Mae dismissed the budget office report's "fundamentally flawed analysis." The statement said the report "misrepresents our public mission and does a terrible disservice" to homebuyers.

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