U.S. Rep. Frank causes stir in mortgage markets

WASHINGTON, March 5 (Reuters) - The powerful chairman of the House Financial Services Committee caused a stir in the mortgage-backed securities market on Friday by suggesting that Fannie Mae and Freddie Mac bondholders do not have the same guarantees as Treasury bondholders.

Rep. Barney Frank, a Massachusetts Democrat, told reporters that bondholders of major mortgage finance sources Fannie Mae FNM.N and Freddie Mac FRE.N should not assume the federal government will guarantee the debt of these government-sponsored enterprises at 100 cents on the dollar and they could theoretically suffer losses, according to U.S. media reports.

"People who own Fannie and Freddie debt are not in the same legal position as (those who own) Treasury bonds and I don't want them to be," Frank told the Washington Post in an interview conducted Thursday and published Friday.

Margaret Kerins of RBS Securities said Frank's assessment that so-called agency debt is not fully backed by the government is incorrect.

"Regardless of the ultimate outcome for the GSEs, we expect all agency debt outstanding and issued under GSE status to remain related to the government. Reducing support is contrary to all of the actions takes by the administration and Treasury," Kerins said in a research note.

Asked about Frank's comments, Treasury Department spokeswoman Meg Reilly repeated the administration's position of backing the companies.

"As we said in December, there should be no uncertainty about Treasury's commitment to support Fannie Mae and Freddie Mac as they continue to play a vital role in the housing market during this current crisis," the Treasury statement said.

The comments comes as Republicans on Frank's committee are pushing the Obama administration to put the trillions of dollars in debt obligations on to the federal budget. (Editing by James Dalgleish)