WASHINGTON - Bert Ely, a banking analyst, predicts that the debate over Fannie Mae and Freddie Mac's regulatory future will cause spreads on agency debt to widen until they are "closer to" corporate bond spreads.

Treasury and Federal Reserve officials in recent months have publicly advocated reconsidering Fannie Mae and Freddie Mac's implied government guarantee. And at an American Enterprise Institute forum Tuesday Rep. Richard Baker, R-La., warned investors in agency securities to "beware" of the political momentum he has generated. Rep. Baker is sponsoring a bill that would tighten regulation of the government-sponsored enterprises.

"What this is doing is to get the market to associate more risk with Fannie and Freddie debt," said Mr. Ely, who also spoke at the Washington institute's conference. Mr. Ely is the co-author of a recent pamphlet blasting Fannie and Freddie.

He said that though everyone in the market assumes Fannie and Freddie are too big to fail the spreads on their bonds are likely to be affected by all the hype.

"This spring and summer people will be really stirred up," Mr. Ely said, but when the legislative session closes, the issue will die down at least until next spring when a new administration will have had time to revisit it. When the debate subsides, he said, spreads will most likely shift back toward where they were earlier this year - but not all the way back.

Wall Street is not happy about that.

Charles A. Gabriel Jr., a senior vice president at Prudential Securities Inc.'s office in Arlington, Va., called Rep. Baker's "buyer beware" warning on agency securities "inflammatory" and irresponsible. Mr. Gabriel, a research analyst, said he is concerned that talk of "the bill gaining traction and reducing agency bond prices" would spook investors.

In his speech Rep. Baker joked that the debate over his bill has taken a toll on his physical condition and that his "reasoning ability has suffered quite a bit."

On a more serious note, Rep. Baker took Fannie and Freddie to task for their hard-nosed lobbying against his bill. "I have learned one thing: Having rational discussion is not possible without inflammatory remarks by Fannie Mae and Freddie Mac," he said.

He accused Fannie and Freddie of being unwilling to participate in debate. He said they were given ample opportunities to discuss the points of his bill and that he is offended they "both say they haven't had the opportunity to communicate."

Robert van Order, Freddie Mac's chief economist, attended the forum and defended his company. If Fannie and Freddie "shouldn't be allowed to lobby," he said, neither should banks, universities, or state governments.

Mr. Van Order took issue with accusations that Fannie and Freddie pose a risk to taxpayers of savings-and-loan-crisis proportions. He said the thrifts are an "an industry with no franchise, with nothing to lose by gambling. But we do have a franchise" and, therefore, an incentive to invest prudently.

Fannie Mae was not represented at the conference. Janice Daue, a spokeswoman for Fannie Mae, said, "Although we've participated in AEI conferences in the past, we've been disappointed in the structure of the recent conferences because they have not had a balanced representation."

Ms. Daue added that the company has participated in the recent debate. Franklin Raines, Fannie's chairman and chief executive officer, spoke to the National Press Club two weeks ago and testified at a hearing held by Rep. Baker last week.

Tom Stanton, a Washington lawyer and longtime critic of Fannie and Freddie, proposed an alternative plan for reform: Create numerous enterprises under a new regulator.

He said his proposal would reduce "the risk exposure of taxpayers to the costs of failure to any single GSE," counter Fannie and Freddie's "negative effects" on competition and innovation, and "assure that a greater proportion of the federal subsidy would flow through the GSEs and into the housing market" rather than to the enterprises' shareholders.

The government, after creating the new enterprises, could "sunset" their beneficial status after five years, he added, turning them into regular companies.

Stephen Moore, director of fiscal policy studies at the conservative Cato Institute, revived a proposal that Fannie and Freddie pay the government a user fee of 10 to 20 basis points on their debt in return for the implied guarantee.

The rationale is that "taxpayers are bearing an implicit risk on Fannie Mae activities, [therefore] it is reasonable that the federal government recoup fees to pay for the assumption of that risk," Mr. Moore said, adding that the fees should make possible a "corresponding reduction in taxes elsewhere."

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