The oversight agency for Fannie Mae and Freddie Mac is taking a hard look at their drive to automate the home loan business.

Aida Alvarez, director of the Office of Federal Housing Enterprise Oversight, has raised concerns that the new technology will concentrate more market power in the hands of the two agencies - formally known as the Federal National Mortgage Association and the Federal Home Loan Mortgage Corp.

Speaking before the California League of Savings Institutions last week, Ms. Alvarez suggested that the automated underwriting systems the agencies are developing could allow them to bypass lenders and come closer to making loans directly to consumers.

"Will Fannie Mae and Freddie Mac improve the system for everyone, or will they simply shrink the playing field by bringing more of the origination business under the GSE [government-sponsored enterprise] umbrella?" she asked.

Ms. Alvarez's remarks are the first public comments by a Government official on an issue that lenders have been anxiously debating. If new technology automates the crucial decision of whether a loan should be made, large lenders fear their roles will be cut back.

Like lenders, regulators appear to be keenly watching the competitive implications of the new technology.

"This is part of the larger issue of the future role of Fannie and Freddie," said Robert M. O'Toole, senior staff vice president of the Mortgage Bankers Association.

"As they get more technologically proficient, what does that do to the role of the primary lender?" Mr. O'Toole asked.

"Our view would be that if at the end of the day you have two lenders [Fannie Mae and Freddie Mac], it's not good for the customers," he said.

The new technology "could dramatically change the origination procedure," said Louis H. Nevins, president of the California League of Savings Institutions.

"If you have a loan preapproved for mortgage insurance and purchase on the secondary market, before a primary lender even knows about it, that changes the game a bit," Mr. Nevins said. "This is serious."

Mr. Nevins was referring to Fannie Mae's plans to make its computerized loan origination system available to real estate agents, who would work in concert with the lenders who do business with Fannie Mae.

Both Fannie and Freddie have said they do not plan to use their new technology to push lenders out of the market.

In her speech, Ms. Alvarez also raised the issue of whether the technology would allow one of the agencies to gain an edge over the other. She added that her staff would monitor loans underwritten through the automated systems to see how well they perform compared to the conventionally underwritten loans.

Analyst Thomas O'Donnell of Smith Barney, New York, said Ms. Alvarez's comments on the controversial subject would ultimately help the agencies.

The speech shows that Ms. Alvarez is "not a regulator without teeth," he said.

This reduces political risk for the agencies, because it establishes that an independent body is keeping an eye on them.

Officials at both agencies voiced support for Ms. Alvarez's comments.

"We share Director Alvarez's [concern] that any change in technology and underwriting pose no risk to the taxpayers." said spokesman David Jeffers of Fannie Mae.

He said agency officials, had briefed the oversight agency's staff on Fannie's technology initiatives, but had not yet provided a demonstration of the system.

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