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Budget Plan Includes More For SEC, Mortgage Overseer
By Kathleen Day
Washington Post Staff Writer
Tuesday, February 3, 2004; Page E01
President Bush's new budget proposes to bolster resources at the agencies that police the nation's securities markets and the two largest suppliers of mortgage money.
The administration budget for fiscal 2005, which begins Oct. 1, would give the Securities and Exchange Commission $893 million, a 9 percent boost over the SEC's fiscal 2004 budget of $811.5 million. The request is double the SEC's 2002 budget.
The agency actually would have $913 million to spend in its oversight of stock exchanges, money managers, mutual funds and Wall Street firms because it will have an estimated $20 million left over from fiscal 2004, officials said.
The increase reflects a steady push by Congress, and eventually the White House, for a hefty increase in funding to help the resource-strapped agency cope with scandals that began with the collapse of Enron Corp. in December 2001 and have spread into Wall Street brokerage houses, the New York Stock Exchange and the mutual fund industry.
A proposed new agency to oversee mortgage funding giants Fannie Mae and Freddie Mac and the 12 banks in the Federal Home Loan Bank System would receive $83 million. That's a 25 percent increase over the combined 2004 funding for the Office of Federal Housing Enterprise Oversight, which regulates Fannie Mae and Freddie Mac, and the Office of Finance, which oversees the home loan banks.
Fannie Mae, Freddie Mac and the 12 banks are known as government-sponsored enterprises, or GSEs, because they were created by Congress to make money for home loans more plentiful. They do this by borrowing money and then lending it to mortgage lenders. District-based Fannie Mae and McLean-based Freddie Mac are publicly traded, stockholder-owned companies. The 12 home loan banks are owned by the banks and insurance companies they lend money to.
The GSEs enjoy benefits calculated to be worth billions of dollars a year, such as tax breaks and exemptions from having to file debt offerings with the SEC.
The Bush administration -- and key members of Congress -- argue that a new, stronger regulator is necessary to ensure adequate oversight of the GSEs. Officials have expressed concern that they pose potential threats to the U.S. financial system because they are so big.
The budget proposal said the Federal Home Loan Banks "suffered a significant decline in profits in 2003," mostly from investment losses and "a failure" to adequately hedge against risk.
It says that the GSEs are "highly leveraged," meaning they have borrowed heavily in relation to the cash they keep on hand as a cushion against potential losses. And it notes that many U.S. banks hold large concentrations of GSE debt. "Given the very large size of each enterprise, even a small mistake by a GSE could have consequences throughout the economy," the administration says.
The GSEs disagreed with much of the criticism. "Our principal concern with the . . . analysis is the same concern we have expressed . . . over the last several budgets," said Freddie Mac spokeswoman Sharon McHale. "As in past years, it paints an unjustifiably negative portrait of our safety and soundness and the fulfillment of our mission."
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