Two House and Senate lawmakers say they will introduce bills by the end of September to let Ginnie Mae compete with Fannie Mae and Freddie Mac in the secondary mortgage market.

Ginnie, a government-sponsored enterprise that is part of the Department of Housing and Urban Development, guarantees securities backed by mortgages that are insured by other government agencies. Mainly it guarantees Federal Housing Administration and VA loans. Industry and political observers say Ginnie could pose a major competitive threat to Fannie and Freddie.

More $600 billion worth of Ginnie Mae mortgage bonds are outstanding in the secondary market. Because they are backed by the full faith and credit of the federal government, they are considered safer than Fannie's and Freddie's. (Fannie and Freddie contend that they have no government backing, but critics and investors say they have implicit backing.)

Experts say Ginnie also offers better pricing and execution for lenders seeking to securitize their loans, so the smaller GSE could take a chunk out of its bigger cousins' market share.

"There is nothing to stop Ginnie Mae from becoming a serious competitor to Fannie Mae and Freddie Mac - except for the fact that it is not allowed to extend outside the government market," said Chad Yonker, a senior vice president at Fox-Pitt, Kelton Inc.

The bills, by Sen. Wayne Allard, R-Colo., and Rep. Marge Roukema, R-N.J., would let Ginnie provide credit wraps to segments of the conventional mortgage market, reducing the number of loans available for Fannie and Freddie to buy and securitize.

A bigger role for Ginnie would stimulate competition through lower guarantee rates and "better execution" for mortgage banks, Mr. Yonker said, and would thereby check Fannie and Freddie's growth.

"If you were to introduce another competitor in the market and it started taking a chunk of the business, growth will become very, very difficult for Fannie and Freddie," he said.

Mortgage banks have been pushing for an expanded Ginnie charter for the past two years, said an industry expert who asked not to be named. The industry, which always welcomes viable alternatives to Fannie and Freddie, want the GSEs, the Federal Home Loan banks, "and everybody else under creation" to buy and securitize loans, the expert said.

The proposal by Sen. Allard - the ranking member of the Senate Banking subcommittee on housing and transportation - would allow Ginnie to securitize loans of as much as $275,000, the same limit imposed on Fannie and Freddie, with loan-to-value ratios of between 80% and 97%.

Ginnie would securitize the loans in a partnership with private mortgage insurers, which would be required to cover the first 45% of loss in the mortgage, an Allard spokesman said. "It would put another player in the market, increase competition, and make more mortgage financing available in the marketplace," he said.

Rep. Roukema's office did not return calls by press time.

Though Fannie and Freddie have enjoyed heavy congressional support, Mr. Yonker of Fox-Pitt Kelton said their lobbyists will have to work especially hard to defeat these bills.

The reason, he said, is that the proposals undercut their traditional, usually successful, argument that anything threatening them also threatens homeowners.

"You can't use that argument against competition - all competition would do is benefit consumers," Mr. Yonker said. "This may give consumers better borrowing rates, and that is why it will be difficult for Fannie and Freddie to argue against it."

But a Washington political observer, who also asked not to be named, warned that the GSEs "are so powerful at this point that if they don't want expansion, it could be very difficult to get the bills passed."

Veteran GSE critic Bert Ely, who runs a financial consulting firm in Alexandria, Va., said he is certain that the bills will be thwarted. "Fannie and Freddie will do their damnedest to kill this," and the odds are with them, he said.

"They want to be the only players under the tent."

Doug Robinson, a spokesman for Freddie, said its officials believe the plan would hurt Ginnie Mae and would not help underserved borrowers.

It would hurt Ginnie, he said, by exposing it to mortgage credit risk for the first time; by letting it into the subprime market; and by weakening Ginnie's FHA and VA loan securities as the strongest customers for such loans went instead for loans made possible by the charter change.

A spokeswoman for Fannie said officials there were still reviewing the proposals. Nonetheless, she said, "although we applaud efforts to increase the availability of affordable mortgage financing, any measure that supports affordable housing should be subject to the same safety and soundness provisions that protect homeowners with mortgages backed by Fannie Mae."

Lenders that were contacted were reluctant to give opinions on the proposal, on or off the record, and Ginnie Mae did not return calls seeking comment.


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