CONGRESSIONAL REPORT QUESTIONS U.S.-BACKED MORTGAGES.

Byline: Richard W. Stevenson The New York Times

A report to Congress raised questions Wednesday about whether the government should continue to provide financial benefits to two private companies established by the government to make mortgages more readily available to low- and middle-income home buyers.

The report, by the Congressional Budget Office, is certain to intensify a long-running debate over whether the companies, known as Fannie Mae and Freddie Mac, should retain an implicit government guarantee of the debt securities they issue in their role of purchasing home mortgages from lenders and selling them to investors.

The implied guarantee lowers financing costs for the companies and helps push down rates for the mortgages they acquire - generally on homes costing no more than $207,000 - thereby making home ownership more affordable.

But some members of Congress have expressed concern that the financial guarantee provided by the government, although somewhat hedged, could leave taxpayers financially responsible for a huge-scale bailout if either company ran into a financial crisis.

Lawmakers also have questioned whether the mortgage markets had changed so substantially in recent years that the roles played by Freddie Mac and Fannie Mae could now be fulfilled just as well by other financial institutions that operate without any government guarantees.

And they have questioned whether private companies that made substantial profit for shareholders and paid large salaries to their executives should receive government assistance.

In its 45-page report, the Congressional Budget Office stopped short of recommending that the implicit guarantee be withdrawn. But it argued that there was little justification for continuing it.

``Improving access to mortgage finance may have been a social benefit worth paying for in the past,'' the report states. ``It is now available without subsidy from fully private firms.''

The report valued the implicit guarantees enjoyed by the companies at $6.5 billion last year, although this involved no actual outlay of money. The value of the lower mortgage rates for homeowners as a result of Fannie Mae and Freddie Mac was $4.4 billion, leaving the companies to retain $2.1 billion last year.

Fannie Mae, formally the Federal National Mortgage Association, and Freddie Mac, the Federal Home Loan Mortgage Corp., are ``a spongy conduit'' for Federal subsidies, the report states, ``soaking up nearly $1 for every $2 delivered.''

Executives from the two companies assailed the report, saying it was flawed in its calculations and it failed to understand the role they play in the mortgage markets.

``This is the work of economic pencil brains who wouldn't recognize something that works for ordinary home buyers if it bit them in their erasers,'' said David Jeffers, vice president for corporate relations at Fannie Mae.

Jeffers said the companies had efficiently passed their financing advantage along to home buyers, citing a quarter-point to a half-point advantage in the interest rates for mortgages, a direct benefit, he said, from participation in the market, compared with loans that were not backed by Fannie Mae or Freddie Mac.

And he said that more than 70 percent of Fannie Mae's earnings each year were applied to building its capital base - its buffer against possible losses. With capital of $13 billion, he said, Fannie Mae is capable of withstanding immense financial shocks without putting taxpayers at risk.

Anne Schnare, senior vice president for corporate relations at Freddie Mac, said the company was ``extremely disappointed'' with the Congressional Budget Office's report.

``We don't think this study would pass the scrutiny of anybody familiar with the industry,'' Schnare said. ``It displays a total lack of regard for consumers and an indifference to the impact that removing our charter would create.''