A bill creating a new regulator for Fannie Mae and Freddie Mac and setting capital levels for the two home mortgage giants could be ready for a House vote by the end of the month.

Reports are that a compromise has been reached over funding to aid victims of Hurricane Katrina. The deal ensures that portions of both companies' after-tax profits will go into a fund to be used only for affordable, low-income housing projects, not lobbying or other political activities. Supporters of the fund have estimated it could reach $1 billion in two years.

A competing Senate bill would shrink the size of the mortgage portfolios held by both lenders and is supported by the White House, which has criticized the House's bill for not doing more to rein in the two companies, which critics contend have grown too large and pose a risk to the financial system.

The affordable housing fund would direct 3.5 percent of post-tax profits to projects designed to benefit Katrina victims, for two years. For three years afterwards, 5 percent of the companies' post-tax profits would go into the fund.

Fannie Mae and Freddie Mac are the two largest buyers of home loans and own or guarantee almost half the $7.6 trillion U.S. mortgage market. The government-chartered companies make their money on the difference between the mortgage returns they buy from lenders and their financing costs.

Fannie has said accounting errors from 2002 through 2004 could require it to restate $8.4 billion in earnings, while Freddie has said it understated profits from 2000 until 2002 by $5 billion in an attempt to reduce earnings volatility. Both companies have lobbied against the proposed legislation.

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