
                         Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: TUESDAY, May 15, 1990                   TAG: 9005150552
SECTION: MISCELLANEOUS                    PAGE: A/4   EDITION: EVENING 
SOURCE: Associated Press
DATELINE: WASHINGTON                                LENGTH: Medium

GOVERNMENT LOAN PLAN OUTLINED

The Bush administration outlined a reform plan Monday aimed at avoiding another savings-and-loan-style crisis involving the government-sponsored agencies that finance housing, farming and education.

Without a penny showing up in the federal budget, taxpayers at the end of 1989 were standing behind $768 billion in loans and guarantees issued by such quasi-private agencies as Fannie Mae, Freddie Mac and Sallie Mae, Treasury Undersecretary Robert Glauber told the House Ways and Means oversight subcommittee.

Previewing a study to be issued by the department later this month, Glauber listed four recommendations designed to improve the federal regulation of the so-called "government-sponsored enterprises" and insulate taxpayers from the potentially huge risks. The recommendations are:

Private stockholders in the enterprises should put more of their own capital at risk, providing an incentive to operate soundly. Glauber said some of the enterprises "are among the most thinly capitalized of U.S. financial entities."

At least two independent credit-rating agencies, such as Standard & Poors, should regularly evaluate the enterprises. They would be required to meet the standards applied to the healthiest corporations with a triple-A rating. Those that couldn't would have five years to meet the standards or lose their ties to the federal government.

The government regulator charged with making sure the enterprises operate safely should be separated from the regulator who makes sure the enterprises live up to their original purpose.

For instance, the Department of Housing and Urban Development would continue to ensure that Fannie Mae and Freddie Mac provide affordable housing, but some other agency that has no interest in promoting housing should make sure they don't go bankrupt.

The value of government support for the enterprises should be disclosed. Because of the government's implied backing, the enterprises can borrow at interest rates far below those paid by comparable fully private corporations.

by CNB