Prospects for passage of a bill appear stronger now after years of failed efforts by Republican critics of the two politically influential companies, which have vigorously lobbied against new restraints. The Bush administration wants to see legislation enacted, though it has not endorsed a specific plan.

Fannie Mae and Freddie Mac, the No. 1 and No. 2 U.S. buyers and guarantors of home mortgages, were created by Congress to pump money into the home-loan market by buying mortgages and bundling them into securities for sale to investors worldwide.

A number of Republican lawmakers object to Fannie Mae and Freddie Mac's privileges, such as the ability to borrow directly from the Treasury, on free market grounds. In return for the privileges, the companies are charged with enabling more low-income and minority people to buy homes and must meet goals set by the federal government.

In a scandal that continues to reverberate, federal regulators last year accused Fannie Mae of serious accounting problems and earnings manipulation to meet Wall Street's quarterly targets. The company was ordered by the Securities and Exchange Commission to restate its earnings back to 2001, a correction that could reach an estimated $11 billion.

Freddie Mac has emerged from an accounting debacle that erupted in June 2003 with the ouster of three top executives and the disclosure that it misstated earnings by $5 billion for 2000-2002.

"The terrible troubles at Fannie Mae make it painfully clear that major reforms are necessary to strengthen regulatory oversight" of the two companies, "to reduce the risks to taxpayers and investors, and to improve our commitment to serving America's homebuyers," Rep. Richard Baker, R-La., said at a news conference.

Baker, chairman of the House subcommittee that oversees Fannie Mae and Freddie Mac, proposed legislation that would strengthen the government's hand over them and also, in a departure from previous bills, authorize a newly created regulatory agency to reduce the size of their multibillion-dollar portfolio holdings. The portfolios include home mortgages and other investments, some of which have been criticized as not comporting with the companies' mission to make homeownership more affordable.

Under the bill, the new agency would be able to compel Fannie Mae and Freddie Mac to sell off any assets it deemed to be "not in the public interest."

Federal Reserve Chairman Alan Greenspan, whose views carry formidable weight with lawmakers, suggested in February that Congress consider placing limits on the massive portfolios held by the two companies. Greenspan said he did not see an immediate risk to the U.S. financial system from their holdings - adding that could change.

Meanwhile, the head of the Office of Federal Housing Enterprise Oversight, which has been investigating Fannie Mae's accounting since last year, told President Bush in a letter Tuesday that he will step down on May 20.

Armando Falcon, a Democrat appointed by President Clinton, submitted his resignation two years ago but stayed on to deal with the Freddie Mac situation and later, the debacle at Fannie Mae. His term expired last October.

The two companies enjoy huge support in Congress. They have been generous contributors to lawmakers of both parties and have supported housing projects around the country.

Several other Republican lawmakers, including House Financial Services Committee Chairman Michael Oxley of Ohio and Rep. Christopher Shays of Connecticut, are co-sponsors of Baker's bill. House Democrats haven't signed on to the measure.

Shays, like Baker a longtime critic of the two companies, said "politically, it's going to be a very tough bill to pass." Still, Shays said, he would have considered it impossible before now, adding, "I'll take tough over impossible."

-- Marcy Gordon