July 8 (Bloomberg) -- Freddie Mac and Fannie Mae, which own or guarantee 42 percent of the $7 trillion U.S. mortgage market, may soon be the target of competing bills to shift oversight of the agencies in the wake of a Freddie Mac accounting scandal.

Representative Ed Royce, a California Republican, plans to introduce a bill this week to create a new regulator for the government-chartered companies, Royce spokeswoman Julianne Lignelli said. Fellow Republican Representative Richard Baker introduced a separate bill in late June, after Freddie Mac ousted its three top executives amid an earnings restatement.

Both bills would move oversight of the companies to the Treasury Department from the Department of Housing and Urban Development. While details of Royce's bill weren't available, Baker, chairman of the House Subcommittee on Capital Markets, also wants such changes such as empowering regulators to fire executives and sue the companies.

The effort by Royce, also a member of the subcommittee, may derail or water down Baker's bill, which already faces opposition from lawmakers reluctant to tamper with the financing of the nation's housing market, an investor said.

``It seems that Congress doesn't have the stomach to do anything substantial,'' said Marshall Front, president of Front Barnett Associates LLC, which manages $1.5 billion in Chicago, including shares of Fannie Mae. ``The most likely change will be in oversight.''

`Unneeded Changes'

Baker, a Louisiana Republican, enlisted 20 co-sponsors for his bill, and claims support from 14 congressmen in his 49-member subcommittee. He needs at least 25 subcommittee backers, a prospect that would be less likely with the competing Royce proposal. Chances of winning support from some other members appear slim.

``This bill is akin to throwing out the baby with the bath water by mandating sweeping and unneeded changes,'' Congressman Joseph Crowley, a New York Democrat and subcommittee member, said of Baker's proposal in a statement. ``It is the housing sector that has kept our nation's economy as stable as it has been.''

In a statement, Royce said he also disagreed with Baker's plan, which would move regulation of the government-sponsored entities to the Office of Thrift Supervision in the Treasury Department from the Office of Federal Housing Enterprise Oversight, which falls under the Department of Housing and Urban Development. Royce would create a new regulator separate from the Office of Thrift Supervision.

``I have a different concept in mind about the new regulator structure of the housing GSEs,'' Royce said.

Shelby Waiting

Congressman Michael Oxley, chairman of the full Financial Services Committee, hasn't weighed in on Baker's proposal. Senator Richard Shelby, chairman of the Senate Banking Committee, which would vote on any legislation to change oversight of the two agencies, also hasn't said whether he would support the Baker measure. Shelby's committee plans to hold hearings on Freddie Mac on July 17.

``We're going to wait for the report on the regulators of Freddie Mac. They are going to be in the best position to tell us what happened,'' Shelby said in a telephone interview. ``That's the prudent thing'' to do.

Baker's bill also must overcome lobbying efforts by Freddie Mac and Fannie Mae, which are among the largest political contributors to Congressional re-election campaigns. Freddie Mac was the top contributor from the mortgage industry during the 2002 campaign, giving almost $4.2 million. Fannie Mae ranked third, according to the Center for Responsive Politics, which tracks campaign contributions.

Campaign Money

Fannie Mae and Freddie Mac ``are major political animals,'' said Paul Miller, an analyst at Friedman, Billings Ramsey Inc. in Arlington, Virginia. Some parts of Baker's bill ``would be very tough to pass and Freddie and Fannie are going to fight it tooth and nail.''

The in-house lobbying team at Fannie Mae and Freddie Mac includes Baker's own former chief of staff, Duane Duncan, who serves as Fannie Mae's vice president in charge of government relations.

Royce received $5,850 from Fannie Mae during the 2002 elections, while Baker didn't receive any Fannie Mae contributions, according to the Center for Responsive Politics.

Another Republican congressmen who didn't sign on as a co- sponsor of the Baker bill, Robert Ney of Ohio, counted Fannie Mae among his top political contributors during the 2002 elections, according to the center. The $10,250 Ney received made Fannie Mae his second-biggest contributor.

Ney ``believes it is important to proceed cautiously and not rush through issues that could disrupt the domestic housing market,'' spokesman Brian Walsh said in an e-mailed statement.

Fannie Mae believes Baker's bill ``includes many provisions from past proposals that were not enacted because they would harm the functioning of the housing finance system and are unnecessary to improved regulation,'' spokesman Chuck Greener said in a statement.

Freddie Mac, which hasn't taken a public position on the Baker bill, hasn't conducted a special lobbying campaign against it, said spokeswoman Sharon McHale. ``We are continually talking to members of congress and their staff about what we do. That's something that we've always been doing.''

Last Updated: July 8, 2003 00:07 EDT