Fannie Mae and Freddie Mac, the housing finance giants, are taking political heat for sponsoring ads in Iowa and New Hampshire opposing elimination of the mortgage interest deduction.
Eliminating the homeowner tax break is part of the flat tax proposal of Republican presidential candidate Steve Forbes
In radio spots, newspaper ads, and direct mailings, the government- sponsored agencies, which invest in home loans, have made the case that Mr. Forbes' plan to eliminate the deduction would depress home prices, increase foreclosures, and wipe out the savings of many Americans.
Protecting the mortgage interest deduction is a time-honored tradition among housing lobbyists. But this time the involvement of the agencies has drawn fire from a prominent advocate of the flat tax in Washington.
Rep. Richard K. Armey, the Texas Republican and House majority leader, told The Washington Post: "Here you have government-sponsored enterprises that enjoy extensive tax concessions from the government that are lobbying for a special provision in the tax code. I don't consider that appropriate."
"There is a partisan flavor to it," Mr. Armey added. "There is nobody in the presidential sweepstakes that advocates a flat tax except Republican candidates."
Fannie and Freddie are part of an informal coalition that includes the National Association of Realtors and the National Association of Home Builders. The group, called the Coalition to Preserve Home Ownership, has spent $270,000 on the campaign.
Spokesmen from both agencies said they were simply participating in a drive to educate voters about the flat tax and the mortgage interest deduction.
"It is absolutely our responsibility as advocates of homeownership to be supporting the mortgage interest deduction as the debate takes place," said John Buckley, senior vice president at Fannie Mae.
Mr. Buckley said that the coalition's efforts had yielded strong support for the deduction from the rest of the Republican field.
This is the latest flap over the political maneuverings of Fannie Mae and Freddie Mac. Some lobbyists fear the cumulative effects of angering key Republicans, who are already wary of government involvement in the housing market.
House Republicans floated several proposals to tax the agencies last year, as they searched for new sources of revenue. The agencies, particularly Fannie Mae, lobbied hard and successfully against each proposal.
"Politics is always a game of cumulative effects," said one lobbyist, who spoke on condition of anonymity. He said an accumulation of doubts about the role of the agencies could eventually prove damaging.
Representatives from Fannie Mae, Freddie Mac, the home builders, and the Realtors will meet over the next week to decide whether to continue the campaign, according to James Gregory, political director of the National Association of Realtors.