The Department of Housing and Urban Development has stepped up its scrutiny of Fannie Mae and Freddie Mac.

Concerned that Fannie and Freddie may be overstepping their chartered mission to buy home loans, HUD has given the two government-sponsored enterprises until the end of this month to give detailed explanations of two new programs, and it threatened them with enforcement action if the deadline is not met.

The tough stance takes HUD Secretary Andrew Cuomo's ongoing skirmish with the companies to a new level. Last year he pushed them to step up their fair-lending commitments. Now he is turning his sights on confining them to their chartered secondary market role.

At issue is a Fannie Mae pilot program with Home Depot in which Fannie helps finance energy-efficiency improvements. Homeowners can apply in stores for loans made by Chevy Chase (Md.) Bank, which are then bought by Fannie Mae. Also under scrutiny is Freddie Mac's real estate sales unit, which includes the HomeSteps Home Buying Center of Moreno Valley. Calif., a "one-stop shop" selling properties in Freddie's foreclosure inventory.

In letters dated Dec. 21, HUD warned that a failure to make "detailed and comprehensive responses" by the deadline could prompt enforcement actions or even suspension of the programs until the agency completes its review. If HUD takes enforcement action, it would refer the matter to the Office of Federal Housing Enterprise Oversight, which could penalize the companies with fines ranging from $5,000 to $1 million per day or with a cease-and-desist order.

One official at a major lender, who did not want to be identified, said Freddie Mac's HomeSteps program goes directly to the consumer and thus is not consistent with its secondary market mission. "It's not in their charter, not in their mission, and it's a clear violation of the Mortgage Banking Association's GSE policy statement," he said.

Gerald Friedman, chairman of FM Watch - the group formed last year by mortgage insurers and others in the private sector who argue that the GSEs enjoy an unfair advantage in funding costs - said the Home Depot and HomeSteps programs are just the kinds of activities his group is worried about. "There is no private-sector company in America that can compete with them in the consumer finance business, and they should not be in that business," Mr. Friedman said.

A spokesman for Freddie Mac said HomeSteps is a necessary step to fulfill the company's mission and keep credit losses on foreclosures to a minimum. A Fannie Mae spokesman said the purchase of energy-efficiency loans is explicitly allowed under the company's charter.

In a signal that HUD means business, it also threatened an enforcement action if Fannie fails to give more detailed information in response to an earlier inquiry on automated underwriting.

HUD, which is looking into whether automated underwriting complies with fair-lending law, charged Fannie Mae with supplying "grossly incomplete" information and making "false and inaccurate" confidentiality claims.

A Fannie Mae spokesman called the letter which was the subject of an article in The Wall Street Journal this week, "a PR stunt." He said the company does not dispute HUD's right to the information. At issue, he said, is "how HUD will live up to its responsibility to keep that information confidential." The spokesman said Fannie Mae has been seeking a dialogue with HUD on confidentiality "for months" and that HUD cancelled an October meeting to address the issue.

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