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Congress must protect Fannie and Freddie

Although houses have never been more expensive than today, home sales surged to an all-time record this summer and more than 50 million American families are expected to purchase homes over the next 10 years.

That's why it is doubly imperative that Congress does everything in its power to preserve the strength of the nation's secondary mortgage market system as it puts the finishing touches on much-needed reform legislation.

There's no doubt in anyone's mind that Fannie Mae and Freddie Mac, the two multibillion-dollar secondary market leaders, need serious reforming if they're to continue to provide the fresh flow of capital that makes American homeownership the envy of the world.

Hopefully, House-Senate conferees will hew to Aristotle's advice — moderation in all things — when they meet to forge a compromise between the House and Senate versions later this fall.

Both the House and Senate bills provide for tighter, more consistent regulatory oversight over Fannie and Freddie. Stricter controls are vital to ensuring that these government-sponsored enterprises adhere to proper accounting procedures and avoid a repeat of the accounting irregularities of recent years.

That's exactly what's called for in these times, especially with millions of African-Americans, Hispanics and new immigrants lining up to buy their very first homes.

Mandates that force Fannie and Freddie to sell off some 80 percent of their mortgage portfolios could prevent the two government-sponsored enterprises from achieving their mission of pumping a steady flow of home mortgage money back to banks and other lenders. Secondary market reform is not best served by mandates but by a strong, independent regulator empowered to act.

Fannie and Freddie are not rigid bureaucratic agencies. They are free-market facilitators that enhance the housing market by providing billions of new dollars that allow lenders to provide low-cost, long-term mortgages to new homebuyers. As such, they are major stokers for a full-throttle national economy.

As they approach their 40th birthdays, Fannie and Freddie's work in aiding those pursuing the ultimate American dream of homeownership has been nothing short of spectacular.

Today, some 70 percent of Americans now live in their own homes — a record that most nations would be deliriously happy to match even by the end of this century. This rising tide of homeownership has swept across all income levels — benefiting poorer Americans and minorities. In fact, more Hispanics and African-Americans own their homes than ever before, and their rate of ownership is increasing faster than that of the general population.

Sadly, housing prices have risen so fast in some particularly robust urban markets that millions of middle-income people again are being priced out of the market.

Public servants like teachers, police officers, librarians and nurses often find they can't afford to live in vibrant cities like San Francisco, where the median home price has soared to $689,000, or New York City, where it's climbed to $435,000.

Fortunately, the housing reform bill passed by the House helps alleviate that problem by allowing Fannie and Freddie to take into account the difference in housing costs from one area to another.

The House bill raises Fannie and Freddie's loan limits from a current cap of $359,650 to as much as 150 percent above median housing prices — increasing the size of mortgages available in the hottest markets to well above $500,000.

It also gives a helping hand to needier Americans by allotting 5 percent of Fannie and Freddie's annual profits for preservation, rehab and construction of affordable housing. That set-aside will provide up to $1 billion annually to meet a burgeoning demand for affordable housing that has now reached 1.6 million units.

As the full House and the Senate edge closer to enacting housing finance reforms, lawmakers should be careful to strike a proper balance between the many competing interests. To my mind, that means providing stronger regulatory oversight without handcuffing Fannie and Freddie as they go about their main mission of helping all Americans achieve homeownership.

As we enter an era of unprecedented demand for housing coupled with skyrocketing prices, an increasing number of homebuyers are scrambling for new forms of innovative financing.

Fannie and Freddie have responded well to such needs in the recent past, and they can do so again if Congress pursues reasonable and responsible reforms rather than allowing itself to be panicked into major and, in my judgment, unnecessary surgery.

A three-term Republican senator from Utah, Jake Garn is a former chairman of the Senate Committee on Banking, Housing and Urban Affairs.