WASHINGTON (AP) – The Treasury Department is tightening its process for approving the millions of dollars of mortgage-related debt issued by Fannie Mae and Freddie Mac, a change that could diminish the footprint of the two giants in the financial markets.

The changes could take effect as soon as January, a senior Treasury official said Friday.

The two government-sponsored companies, the biggest buyers and guarantors of home mortgages in the country, have been roiled by accounting scandals and are under pressure from the Bush administration and Republican lawmakers who want their combined multitrillion-dollar holdings to be reduced.

The latest government move is seen as an attempt to bring the companies to the bargaining table over legislation that still could arise in Congress’ lame-duck session.

The Treasury Department “is sending a very powerful signal,” said Bert Ely, a banking consultant in Alexandria, Va., who is a critic of Fannie Mae and Freddie Mac. “I think it’s leverage to get them to the table.”

If the amount of debt the companies could sell was lessened, they likely would have to compensate by selling off part of their mortgage portfolios.

Last summer, the government began reviewing the financial operations of the two companies. The review included an examination of the Treasury Department’s process for approving their issuance of debt in the securities markets.

The new process will require Fannie Mae and Freddie Mac to notify the Treasury several weeks before the start of each quarter about how much new debt they intend to issue during the period and to justify the amounts. The companies’ senior executives will have to certify the accuracy of the requests.

Sometimes under the current arrangement Treasury isn’t informed of the companies’ plans for issuing new debt until after the fact. The department official, who spoke on condition of anonymity because details of the plan haven’t been made final, told reporters the new requirements would add efficiency and transparency to the process and would not hamper the financial flexibility of the two companies.

The financial markets, however, may anticipate that the new process will reduce the amount of debt that Fannie Mae and Freddie Mac can issue.

“I support the new Treasury process for greater oversight and potential limitation of … debt issuances,” Rep. Michael Oxley, R-Ohio, outgoing chairman of the House Financial Services Committee, said Friday in a statement.

Oxley, who would play a role in legislation being considered during the lame-duck session, also warned that “the time to legislate is getting short.”

With the Democrats taking control of Congress in January, prospects for legislation to reduce the companies’ mortgage holdings are less favorable.

Brian Faith, a spokesman for Washington-based Fannie Mae, and Sharon McHale, a spokeswoman for Freddie Mac, based in McLean, Va., both declined to comment on the Treasury’s action.

The two companies were created by Congress to pump money into the home-mortgage market by buying home loans from banks and other lenders and bundling them into securities for sale on Wall Street. They have grown dynamically in recent years and now finance or guarantee some $4 trillion of home mortgages, representing about half of the single-family mortgages in the country.

Fannie Mae, which finances one of every five home loans in the United States and is the second-largest financial institution after Citigroup Inc., has been reworking its accounting back to 2001 in the wake of the 2004 scandal that forced out top executives and brought a record $400 million civil fine in a settlement with federal regulators. The government-ordered restatement of its earnings, expected to be completed by year’s end, is anticipated to reach $10.8 billion, though Fannie Mae has said the final amount could be lower.

Freddie Mac, the second-largest buyer and guarantor of home mortgages, disclosed in June 2003 that it had misstated earnings by some $5 billion – mostly underreported – for 2000-2002 to smooth out volatility in profits and uphold its image on Wall Street as a steady performer.

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On the Net:

Fannie Mae: http://www.fanniemae.com

Freddie Mac: http://www.freddiemac.com

Treasury Department: http://www.ustreas.gov