Treasury Secretary John Snow urged Congressmen to pass legislature restricting the size of Fannie Mae’s and Freddie Mac’s mortgage portfolios. The remark follows a discussion of the necessity of tougher oversight of the two government agencies.

Yesterday Freddie filed financial statements showing a 41% decline in net income, due to losses on derivatives the company used to hedge against interest-rate risks. The fall follows a series of accounting scandals at both agencies that relied on derivatives to manipulate their earnings and offset volatility of their mortgage portfolios.

The call from Snow echoes the claim from Fed’s boss Alan Greenspan who recently told Congress that in his opinion neither company needs to hold over $100 billion to $200 billion of mortgages. Now they both have $1.5 trillion in combined value.

"We will be suggesting there be some constraints on the GSEs’ holdings of these securities, while at the same time making sure they are fully capable of fulfilling their basic mission of making sure we have a strong secondary market for mortgages," Mr. Snow said.