Congress must reform the Federal Home Loan Bank System so it focuses more on its original mission of expanding housing opportunities, a senior Treasury Department official said Wednesday.

"If the Home Loan Bank System did not exist today, no one would seriously propose to create a government-sponsored enterprise with anything like the system's current mix of activities," said Richard S. Carnell, assistant Treasury secretary for financial institutions.

Speaking at an American Enterprise Institute symposium on the Home Loan banks, Mr. Carnell said the system has strayed from its original mission of supporting mortgage lending that the private sector might otherwise not do.

For instance, he said, 41 cents of every dollar borrowed by the system is invested rather than loaned to member institutions to support mortgages.

Congress should limit Home Loan bank investments to an amount equal to capital plus member deposits, which was $45 billion at Oct. 31, Mr. Carnell said.

This would force it to focus more on expanding housing opportunities, he said.

His remarks drew an immediate response from Bruce A. Morrison, chairman of the Federal Housing Finance Board, the Home Loan banks' regulator.

As Mr. Carnell was speaking, the finance board was meeting six blocks away, updating its strategic plan for the next five years.

"Never has Congress limited the mission of the system to correction of market failures, as Treasury continues to contend," Mr. Morrison said in a statement.

Advocates of the system claim that it is hamstrung by a 1989 law requiring it to pay $300 million annually to help finance the thrift industry bailout. They want that payment converted to a percentage of earnings, said J. Patrick Cave, assistant vice president for the Council of Federal Home Loan Banks, a trade association representing 10 of the banks.

The group also advocates a more permanent capital structure based on risk.

Currently, the Home Loan banks' capital formula is based on the asset size of member banks.

The Home Loan Bank System was created in the shadow of the Great Depression to supply low-cost funding and act as a market buffer for thrift institutions dedicated to making home loans.

Today the 12 Home Loan banks-under finance board regulation-maintain a $150 billion investment portfolio and allow nearly any type of financial institution to join the membership.

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