The agency that regulates Fannie Mae and Freddie Mac is hamstrung by the congressional appropriations process and needs more flexibility to respond to market forces, its director said.

In a speech Tuesday to an America's Community Bankers conference, Armando Falcon of the Office of Federal Housing Enterprise Oversight said his agency is the only federal regulator dependent on Congress to set the formula for funding. "This is simply unsound public policy," he said. Mr. Falcon wants to send the bill for regulation directly to the government-sponsored enterprises.

The Office of Federal Housing Enterprise Oversight is an independent agency within the Department of Housing and Urban Development. It was established by the Federal Housing Enterprises Financial Safety and Soundness Act of 1992 and is required to establish minimum capital standards and monitor the risks taken by the enterprises. Fannie and Freddie hold government charters to foster homeownership by buying mortgages.

Though the agency is funded by the GSEs rather than with taxpayer money, Congress must approve its budget. Fannie and Freddie split the bill according to their assets.

Mr. Falcon said his agency needs more flexibility to respond to major changes in the GSEs' businesses and in the housing market, such as a rise in loan purchasing volume or a rise in interest rates. To bolster his case, he pointed to the rapid growth of Fannie and Freddie in recent years and the relative stability of his budget.

David Jeffers, a spokesman for Fannie Mae, said the change would be a mistake. "We think it is appropriate for OFHEO to be in the appropriations process because it provides the best congressional oversight," he said.

A spokesman for Freddie Mac said it has no position on Mr. Falcon's request.

Mr. Falcon said his agency determines capital requirements for Fannie and Freddie by predicting how much capital they would need to weather severe economic scenarios.

The public comment period for the agency's capital proposals is to end Friday. Mr. Falcon said he hopes to adopt required-capital numbers by yearend.

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