WASHINGTON - A lobbying group critical of Fannie Mae and Freddie Mac ascended Capitol Hill Tuesday and asked Congress to compel the two secondary mortgage market giants to "reallocate" an estimated $10.6 billion that it says they receive in annual government subsidies.

FM Watch, which chiefly represents large mortgage lenders and private mortgage insurers, presented a study that says the two government-sponsored enterprises "misspend" the subsidy by allocating more than one-third to shareholders and only 5% to borrowers with incomes below the national median.

The study, prepared by FM Watch consultants, says minority borrowers are particularly ill-served by the GSEs. It claims that while African-Americans represent 12% of the population, they receive only 3% of the portion of the GSE subsidy that goes to home purchases. Hispanics, who make up 13% of the population, get only 4%, the study says.

At a press briefing Tuesday, FM Watch executive director Michael House said, "The GSEs have a strategy of emphasizing profits over people - or profits over mission."

Mr. House and other FM Watch officials said they would recommend to Congress that the two government-sponsored enterprises be required to pass more of the subsidy on to borrowers. They suggested achieving this by making Fannie and Freddie give certain borrowers grants to cover down payments and subsidize the interest payments on particular loans.

Representatives of Fannie and Freddie would not address the two recommendations, but had withering criticism of FM Watch's study and its motives.

Freddie Mac spokesman Douglas R. Robinson said, "This is a shameful attempt by FM Watch to exploit African-American and other minority or low-income borrowers for the sole purpose of benefiting their own members, so they can continue to make high-cost and even predatory loans in those communities rather than allowing Freddie Mac to meet the needs of those borrowers."

Fannie Mae and Freddie Mac say they receive no subsidy at all from the government. Representatives noted that the companies get no direct funds from taxpayers; the estimated subsidies are based primarily on the GSEs' ability to borrow money more cheaply because of the capital market's supposed perception that their debts have government backing.

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