Fan and Fred's Apron Strings

The home-mortgage giants known as Fannie Mae and Freddie Mac are overdue for more oversight. Together, they lead the $6.6 trillion US mortgage market. They're too big to fail.

Last Friday, President Bush asked Congress to boost oversight of Fan and Fred, including $3 million for a review of both these government-sponsored enterprises in light of recent accounting coverups uncovered at Freddie Mac.

Two days before Mr. Bush's request, Treasury Secretary John Snow asked Congress for a tough new regulatory agency within his department with muscle to oversee the two cousins. The current oversight agency, the Office of Federal Housing Enterprise Oversight (in the Department of Housing and Urban Development) has been criticized for its inability to successfully supervise Fan and Fred.

Mr. Snow also said he's asking Congress to eliminate all presidential appointees from the boards of both Fan and Fred. That should help reduce their political clout on Capitol Hill and send a signal that these companies should serve their stockholders and customers exclusively.

Though the administration's steps are welcome, there's a lot more work to do to create a more level playing field among mortgage lenders.

Fan and Fred have grown partly because they get special treatment - they enjoy a line of credit from the Treasury Department, and hence the government's backing. That's allowed them to buy up huge numbers of home loans from banks and bundle them into securities to sell on Wall Street. In fact, they have about $1.6 trillion in mortgage-backed securities; critics say that exposes them to an undue amount of interest-rate risk. The pair's current structure could force taxpayers to pick up the costs of a massive bailout, were they to fail.

Fannie and Freddie have long since grown up. It's high time for Congress to help loosen the apron strings.