Treasury wants wider GSE oversight: document

By Patrick Rucker

WASHINGTON (Reuters) - The U.S. Treasury Department wants to expand its power to regulate how Fannie Mae and Freddie Mac access the debt markets in a reform that could stifle growth of the mortgage finance companies' investments, according to a document obtained by Reuters.

An outline of the proposed Treasury plan would require Fannie and Freddie to "estimate total debt outstanding (with high and low range) during the upcoming six-month period" and envisions penalties if the companies exceed the debt ceiling.

Fannie and Freddie are not currently required to give Treasury long-term outlooks of their funding needs.

The plan envisioned by Treasury would require the two government-sponsored enterprises to get department approval before any debt issuance that "may materially change the risk profile of the enterprises" or "may have significant spillover effects," according to the outline.

Sources close to the GSEs say that language could be construed as a Treasury test to gauge whether the companies' debt issuance might imperil the broader economy.

Fannie and Freddie critics have warned that the companies' investment holdings, valued at roughly $1.4 trillion, are so large that they pose a potential "systemic risk" to financial systems.

The GSEs issue corporate obligations known as "agency" debt to fund their profit-making portfolio of mortgage investments.

Last November, a senior Treasury official said Fannie and Freddie would soon have to give the department advance notice of its intentions to sell corporate debt because the current review process was too haphazard.