The Senate Banking Committee chairman accused Fannie Mae and Freddie Mac of "destroying themselves" and called for a clarification of their mission by Congress.

"The GSEs as we’ve known them in the past aren’t going to be anymore," Sen. Richard Shelby, an said in a Senate Banking Committee hearing.

To counter calls for portfolio limits, Fannie Mae interim CEO Daniel Mudd, said the company’s mortgage portfolio "makes an important contribution to the liquidity and affordability of the U.S. mortgage market."

Fannie Mae "has drawn in billions of dollars from investors abroad to expand the availability and lower the cost of housing for low- and moderate-income Americans," Mudd said. "It is not at all clear that those foreign investors would place their money in the U.S. housing market without the predictability and convenience provided by" activities of Fannie Mae and smaller rival Freddie Mac.

The National Association of Home Builders and the National Association of Realtors are stepping forward in defense of Fannie Mae and Freddie Mac, the two government-sponsored enterprises that are attacked now for the accounting scandals they underwent recently. The two powerful industry bodies are projected to voice their opposition to the government’s plan to cut the portfolios of the two entities. The plan involves reducing the holdings of the two companies from the combined $1.5 trillion they currently have to some hundreds of billions. Bush proposes to leave the option to establish the maximum size of the holdings to the new oversight body that will supervise the two companies that are now overseen by Ofheo. This proposal was outlined by Treasury Secretary John Snow last week.

The plan evoked severe criticism from the supporters of Fannie and Freddie who are warning that the two agencies are crucial for providing the housing to low-to-middle income families.

’’I’ve been doing this [business] for 51 years," said Angelo R. Mozilo, chief executive of Countrywide Financial Corp.. "I don’t know how familiar [Mr. Snow] is with the housing market."

Some Congressmen are pushing for a reform that would stipulate that the new regulator has the powers to impose limits on the two bodies’ portfolios. This is a compromise that could help to alleviate the controversy.