New Regulator in Rescue Plan Spurs Debate

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WASHINGTON — When the Treasury secretary, Henry M. Paulson Jr., orchestrated a rescue effort for the nation’s two largest mortgage finance companies last week, most of the attention was focused on the infusion of cash and credit that the government would provide. But his plan also relies on the creation of a new regulatory agency to control the companies more tightly over the long term and to limit the risk they pose to the country’s financial system.

Under the measure, Congress would lose some of its authority to oversee the companies, Fannie Mae and Freddie Mac, including the right to determine how much capital they must keep as a cushion against losses. That role would shift to the new regulator, which would be called the Federal Housing Finance Agency; the director of the agency would be appointed by the president and confirmed by the Senate.

While experts on the companies agree that the proposed regulator would be stronger than the existing one, housed in the Department of Housing and Urban Development, some contend that the legislation does not go far enough.

These critics say that the measure tilts in favor of the companies, even as it tries to strike a balance between promoting affordable housing — a primary mission of the government-sponsored mortgage giants — and setting limits on them to diminish the risks they pose to the world financial system. A new regulator, they say, would have significant new powers, but still less than bank regulators now have.

http://www.nytimes.com/2008/07/21/washington/21fannie.html?th&emc=th