Rep. Richard H. Baker, R-La., roasted a top Treasury official Wednesday for sending Congress a tardy and inconclusive report on whether the government should cut its ties to Fannie Mae and Freddie Mac.
"It seems that after more than two years of study we have a report that says, 'Standing still is risky, and doing something is risky,'" Rep. Baker told Lawrence H. Summers, the deputy Treasury secretary, at a hearing before the capital markets subcommittee of the House Banking Committee.
"I am convinced that, for whatever reason, this report has been rewritten," he said. "It reaches no conclusions and ignores the changes in the marketplace that have occurred and gives little direction to this committee for prompt response to the circumstances we face."
In recent months, Rep. Baker has pressed four government agencies - the General Accounting Office, Congressional Budget Office, Treasury Department, and Department of Housing and Urban Development - to tell Congress the pros and cons of breaking the government's links to Fannie and Freddie.
Congress asked for the studies in 1992, but the reports were a low priority in a Democrat-controlled Congress.
While the Congressional Budget Office and GAO were relatively quick to comply with Rep. Baker's requests, the Treasury has been slow - provoking the wrath of the Louisiana Republican.
Reports have circulated that the department succumbed to political pressure from Fannie Mae, formally the Federal National Mortgage Association, and rewrote its more controversial conclusions.
In what appeared to be a test of that theory, Rep. Baker asked Mr. Summers to explain several differences between an early draft and the final report. The differences concerned how the private market would respond if Fannie and Freddie were to lose their special status, the efficacy of the Office of Federal Housing Enterprise Oversight, and an entire chapter on alternatives to the current structure.
The early version said the private market would easily fill the gap left by Fannie and Freddie and that investors in fully private government- sponsored enterprises, or GSEs, would do a better job of ensuring their safety and soundness than their regulator.
Mr. Summers was hesitant in replying and finally just said that he couldn't comment on anything but the report's final version, which took stands more favorable to the mortgage agencies on those issues.
Some questions Mr. Baker raised might point to how he wants to change the current arrangement between the government and Fannie Mae and Freddie Mac, formally the Federal Home Loan Mortgage Corp.
He asked Mr. Summers whether the mortgage agencies should automatically be able to raise their loan limits in tandem with the Federal Housing Finance Board's home price index, though they do not reduce their loan ceilings when that index falls.
"It seems to me there ought to be some analysis at Treasury that there is an inability of private markets to meet that sector of demand before automatically saying, 'Here, take the government advantage and go displace some more private businesses from extending credit,'" Rep. Baker said.
Mr. Summers said he had not studied the issue.
Rep. Baker also wanted to know whether, given statements by Fannie and Freddie that they are well capitalized and do not need taxpayer funding, the Treasury's $10 billion conditional line of credit to the mortgage agencies and the Federal Home Loan banks is still needed.
Mr. Summers again said he could not comment.
Rep. Baker asked at what point Fannie and Freddie could be considered undercapitalized. The agencies currently have a capital-to-assets ratio of 3.9% - about half the ratio at thrifts, according to the Treasury Department.
Mr. Summers said the mortgage agency regulator was better suited to answer that question.
While the grilling was good drama, the opening statements and questions from Rep. Baker's Democratic and Republican colleagues showed strong backing for Fannie and Freddie.
Supporters of the agencies argued that the Treasury Department and other government agencies are understating the benefits Fannie and Freddie pass on to consumers.
For example, Rep. Rick Lazio, R-N.Y., said the agencies' contributions to stabilizing the mortgage market and their technological and product innovations had not been quantified in the calculation of taxpayer costs and benefits.
Supporters said the agencies were making valuable contributions to financing housing for low-income and minority Americans - something they wouldn't have to do if government sponsorship were ended.
"The role of the GSEs has become even more important over the past decade as funding has declined for federal housing programs," said Rep. John J. LaFalce, D-N.Y.
"I would urge great caution in tampering with what I believe are important and positive examples of how modest and targeted government intervention can achieve major social benefits with minimal cost and risk," Rep. LaFalce said.