Last week Senate Banking Committee Chairman Richard Shelby, (R., Ala.), announced that his committee will meet this Thursday to mark up the GSE regulatory reform bill. Shelby did not specify what the legislation would require in terms of Freddie Mac and Fannie Mae portfolio reduction. The Alabama Republican's statements came after Federal Reserve Chairman Alan Greenspan said that both GSEs would be better off investing in U.S. Treasurys rather than mortgage-backeds, which, he said, the agencies should not even be allowed to purchase.

These pronouncements come amidst indications that the Shelby bill contains a provision requiring the GSE regulator to limit GSE portfolio holdings to those that support the GSE mission, a provision that is not expected to gain bipartisan support, derailing the bill's passing. But bill or no bill, the GSEs are expected by analysts to reduce their portfolios anyhow.

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