WASHINGTON - Rep. Richard Baker, R-La., is scaling back legislation that would overhaul regulation of Fannie Mae and Freddie Mac in an effort to improve its prospects of becoming law.

The chairman of the Financial Services subcommittee that has jurisdiction over government-sponsored enterprises said Tuesday that he plans to introduce a bill next week that will serve as a legislative marker that "we are going to move very slowly, very methodically through the summer."

To be sure, the new Fannie and Freddie regulator - to be housed in the Federal Reserve, Treasury Department, or in an agency of the Treasury similar to the Office of the Comptroller of the Currency - is expected to be given more "bank-like" supervisory tools like cease-and-desist orders and prompt corrective action authority that would let examiners impose increasingly severe remedies as an institution's capital declines.

But a Baker spokesman said the bill probably would not attempt an "outright repeal" of Fannie and Freddie's $2.25 billion lines of credit at the Treasury Department. And Rep. Baker said that the bill probably would not put that regulator in charge of the Federal Home Loan Bank system.

Some issues would be punted by requiring studies of current GSE practices and their implications.

"We would like to see a new regulator engage in a series of studies with a pretty strict time line," the Baker spokesman said. For example, "we'd like to see the new regulator look into and make recommendations" for limiting the amount of GSE securities banks can hold to 10% to 15% of capital.

The moves are more in keeping with Rep. Baker's more statesmanlike tone on the GSE issue, which is expected to be reflected in his bill.

Last year, Rep. Baker held high-profile hearings raising concerns about the quality of supervision by the Office of Federal Housing Enterprise Oversight, and bashed the companies on several occasions for stymieing his reform efforts.

He caused a stir - even jolting Fannie and Freddie's share prices - by introducing a bill early last year to terminate the lines of credits, which investors see as evidence of an implicit government guarantee to bail out Fannie and Freddie should they have large-scale losses.

But after striking an agreement last fall in which the two companies agreed to a set of specific risk management and public disclosure enhancements, Rep. Baker has softened his approach.

For example, he declined earlier this month to enter the recent fray between Fannie, Freddie, and bank executives tossing around accusations of intimidation. "I have no basis on which to make such allegations. That's why I'm being very guarded in my statements," he told American Banker the day The Wall Street Journal reported accusations by financial services executives that they had been intimidated by Fannie and Freddie.

An issue that divided the committee last year is expected to cause less grief this time around.

"He'll push this thing, but I don't see him putting other members in the position of taking divisive votes on this," a lawyer close to the committee said.

Rep. Baker received an important endorsement from House Financial Services Chairman Michael G. Oxley, who had said little on the matter until Tuesday when he said lawmakers should consider whether "regulators have the powers they need to be effective" to supervise Fannie and Freddie.

Still, few were willing to bet on the prospects of the bill being enacted into law this year, or even this session of Congress.

"There will be movement of the bill, but it is too speculative right now to say if there will be a bill that passes both houses of Congress and is signed by the President," said Howard B. Glaser, a lobbyist for the Mortgage Bankers Association of America.

Senate Banking Committee Chairman Phil Gramm has said he plans to continue oversight of the GSEs but has not scheduled a hearing on revamping their regulatory structure. In a March 16 letter to the Senate Budget Committee, Sen. Gramm reiterated views expressed last year that "given the unlikelihood that the government would acquiesce in the failure of a GSE" the panel "should give consideration to reforming the budget process to account for the subsidy element and unfunded liabilities of GSE operations and obligations."

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