Treasury GSE debt review no threat: Rep. Frank

By Patrick Rucker

WASHINGTON (Reuters) - U.S. Treasury Secretary Henry Paulson believes a department review of how mortgage companies Fannie Mae (FNM.N: Quote, Profile, Research, Stock Buzz) and Freddie Mac (FRE.N: Quote, Profile, Research, Stock Buzz) access debt capital markets will not disrupt their business, a leading Congressional Democrat said on Thursday.

Barney Frank, who chairs the U.S. House Financial Services Committee, said Paulson assured him that the review does not represent a new policy and should not derail talks about new legislation for the government-sponsored enterprises, or GSEs.

"He said, 'No, it is not a substantive change,'" Frank said at the Reuters Regulation Summit in Washington.

Frank added that he hoped the House of Representatives would pass GSE reform legislation by this summer.

In mid-November, a senior Treasury official announced plans for new oversight of how Fannie and Freddie issue debt to finance their combined $1.4 trillion investment portfolios.

The department has argued that those portfolios are bloated and should be slashed, and that it has the authority to deny the companies access to the debt markets.

The November announcement threatened to disrupt talks between the Treasury Department and Congressional Democrats over how best to regulate the companies, Frank said. Democrats regained control of both houses of Congress this month.

Frank said the department previously raised its power to curb Fannie and Freddie debt as a way to induce talks, but that Paulson dropped the tactic in part because it might rattle investors.

"Paulson understood the counterproductive, negative market effect," Frank said. "That threat is off the table."

Early news reports of the plan "went counter to some of the things that we had been talking about," Frank added.

The Treasury Department plan outlined in November would require the companies to justify their funding needs "prior to a calendar quarter," and called for a review "a number of days or weeks prior to that quarter."

The Treasury official at the time said the review process could begin as soon as January.

A Treasury spokeswoman said on Thursday that the department "is currently working to ensure that the (debt oversight) process will be comprehensive, effective and carried out in a more uniform fashion."

Treasury has said it has the authority to approve the issuance of Fannie's and Freddie's debt because they hold federal charters to promote home ownership.