WASHINGTON — Fannie Mae and Freddie Mac got a double dose of good news Tuesday as their chief critic in Congress declined during a public hearing to address competitors’ allegations of unfair business practices, and a top Bush administration official appeared to dismiss the claims as a distraction.

Rep. Richard H. Baker, chairman of the House Financial Services subcommittee on capital markets, made clear in his opening statement that he intended to limit discussion to one topic: the implementation of a voluntary agreement that the companies reached with the Louisiana Republican last year to toughen risk management and increase public disclosure.

By doing so, he discouraged talk about allegations that Fannie and Freddie have used their GSE status to dominate the secondary mortgage market and to unfairly intimidate competitors.

“While these charges may deserve consideration by the subcommittee, they are not the subjects of today’s proceedings. I do not think the subcommittee should jump recklessly into these disputes,” he said in a statement.

As a result, witnesses from Fannie and Freddie were able to trumpet their compliance with last year’s agreement, and responded forcefully to light questioning about the competitors’ recent complaints.

“The allegations are completely baseless,” said J. Timothy Howard, Fannie’s executive vice president and chief financial officer.

Also on Monday, Treasury Secretary Paul H. O’Neill said that, amid the controversy over the three executives’ claims, the real point of the debate over Fannie and Freddie is being missed.

“The lobbyists are hired and deployed on both sides of an issue that I think essentially boils down to one question, which I believe is this: As a society, should we give some kind of a preferential place in capital markets to housing?” he said.

“It masquerades in a hundred different forms. Somebody’s beating somebody up or twisting their tail and insisting they do something else. At the end of the day the fundamental question … is whether there should be some advantaged position in the U.S. capital markets for housing,” he said.

“There are people who believe, I think in good faith, that the answer is no. Most of them would not like to walk out here and stand with me and say that. They’d rather do stealth attacks. But I am going to tell you as an economist that that is the central idea.”

Mr. O’Neill also responded to questions that his personal friendship with Fannie Mae chief executive officer Franklin D. Raines may interfere with his objectivity in assessing the GSEs.

In a question-and-answer session following a speech before the National Association of Business Economists here, Mr. O’Neill described Mr. Raines as “a decent, caring human being trying to make things better.” He added: “It was hung around my neck that ‘he can’t be objective about Fannie Mae because Frank Raines, he admits, is a good friend of his.’ I find it really difficult to live with that characterization.”

The hearing before Rep. Baker’s subcommittee was intended to verify that the GSEs have complied with the agreement they struck with the committee last year. The deal required them to issue publicly traded, externally rated subordinated debt every six months, and to install an interim risk-based capital test until the Office of Federal Housing Enterprise Oversight adopts permanent rules. It also required them to maintain more than three months’ worth of liquidity, to publicly disclose results of monthly interest rate risk sensitivity analyses and quarterly credit risk sensitivity analyses, and to obtain and publicly disclose a rating from a nationally recognized statistical rating organization.

Mr. Howard testified that Fannie had implemented all of the six elements contained in the voluntary agreement. Freddie Mac chairman and chief executive Leland Brendsel said that his organization had complied with all the requirements except the monthly reporting of interest rate risk. He said Freddie Mac would be in full compliance with the agreement by the middle of April.

Rep. Baker praised the GSEs for their readiness to comply with the voluntary agreement, but noted that it is only a “meaningful first step.” His comments appeared to leave the door open to further action — such as legislation he is expected to introduce next week that would create a new regulator with more power than OFHEO.

Rep. Baker said after the hearing that his bill would either create an independent regulator of the GSEs, or establish a regulatory office within the Treasury Department or the Federal Reserve Board.

Rep. Baker’s continuing call for tighter GSE regulations was echoed by another influential lawmaker, House Financial Service Committee Chairman Michael G. Oxley, during Tuesday’s hearing. “We should take a look at the existing framework for regulating Fannie Mae and Freddie Mac,” Rep. Oxley said. “We should consider whether the current division of regulation” between OFHEO and the Department of Housing and Urban Development “ought to be streamlined and whether the regulators have the powers they need to be effective.


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