Congress may tighten control of government-sponsored enterprises such as Fannie Mae and the Federal Home Loan Bank System.

Lawmakers have long questioned whether the enterprises should be privatized or forced to pay user fees in exchange for the implicit backing of the government, which allows the firms to pay below-market rates for funding. The enterprises use these cheap funds to dominate the secondary markets for housing, education, and agricultural loans.

Though such drastic changes will not occur soon, many in Congress seem ready to boost the authority of regulators to ensure the enterprises don't stray from their mission and crowd out true private-sector businesses.

It's no wonder Congress is concerned-the General Accounting Office reported last week that lending by government-sponsored enterprises totaled $1.8 trillion last year, accounting for 12% of all outstanding credit in the United States.

Members of two House subcommittees tackled those questions in a joint hearing last week.

"We need to ask whether they continue to meet their public policy objectives," said Rep. Stephen Horn, who heads the government management, information, and technology subcommittee of the House Government Reform and Oversight Committee.

Rep. Richard Baker, chairman of House Banking's capital markets subcommittee, said Congress should pass uniform capital requirements and oversight laws for the enterprises, which parlay their low-cost borrowing into enormous profits for shareholders.

Rep. Baker said he hopes to introduce legislation next year.

"We're trying to formulate a single GSE policy, which has been an elusive goal," he said.

Though last week's hearing took a broad look at government-sponsored enterprises in general, more detailed reviews are in the works.

For instance, on Thursday Rep. Baker's panel will hold a hearing to examine a possible merger of the Federal Housing Finance Board, which regulates the Home Loan Bank System, and the Office of Federal House Enterprise Oversight, which regulates Fannie Mae and Freddie Mac.

GAO Chief Economist James L. Bothwell said the merger could become a model for regulating other government-sponsored enterprises.

By creating a "healthy tension" between the Home Loan banks, Fannie Mae, Freddie Mac the merger would prevent the regulator from being "captured" by one operation, according to a GAO report released last week.

Also a combined regulator would have more clout with the White House and Congress, could create more consistent rules, and consolidate staff, the report said.

Two economists urged lawmakers to enact more dramatic measures. Thomas H. Stanton, a fellow at Johns Hopkins University's Center for the Study of American Government, said government-sponsored enterprises should face the same capital standards as banks.

Francis X. Cavanaugh, a consultant and former senior Treasury official, said government-sponsored enterprises such as Fannie Mae should lose federal backing once they are established in the marketplace."

"Ideally, the government should show the way and then get out of the way," he said.

Rep. Carolyn Maloney, D-N.Y., said Congress isn't ready to go that far. "Before we take away government-sponsored status, we must make sure their function will be adequately performed by the private sector," she said.

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