Bernanke: Mortgage giants should cut assets

Federal Reserve Chairman Ben S. Bernanke urged Congress on Tuesday to bolster regulation of mortgage giants Fannie Mae and Freddie Mac and suggested limiting their massive holdings to guard against any danger their debt poses to the overall economy.

Bernanke has previously supported efforts to pare the two mortgage companies’ huge portfolios. This time he was a bit more specific and recommended that their holdings might be linked to a “measurable public purpose, such as the promotion of affordable housing.”

The Fed chief’s suggestion was contained in remarks delivered via satellite to a bankers meeting in Hawaii.

His remarks come as worries about risky mortgages are making investors jittery.

Lenders to sub-prime borrowers -- people with blemished credit histories -- have been battered. Rising interest rates and weak home prices have made it increasingly difficult for these borrowers -- especially those with adjustable-rate mortgages -- to keep up with their mortgage payments. Delinquencies and foreclosures in the sub-prime mortgage market are surging.

Against this backdrop, Bernanke said he wanted to be clear that by suggesting the change in Fannie Mae’s and Freddie Mac’s portfolio holdings, he was not advocating a change in the exposure of the mortgage giants’ sub-prime loans.

Last week, Freddie Mac said that it would no longer buy certain risky, sub-prime mortgages. Fannie Mae is the No. 1 U.S. buyer of home mortgages; its rival, Freddie Mac, ranks as the second-largest buyer.

On Capitol Hill, various efforts over the last several years to tighten the government’s reins on Fannie Mae and Freddie Mac have ultimately languished.