In a close vote along party lines, the Senate Banking Committee approved a bill to increase oversight of mortgage financing companies Fannie Mae and Freddie Mac, as well as reduce their combined $1.5 trillion investment portfolios by about $600 billion.

The Republican-sponsored legislation passed in an 11-9 vote and will compete with a more restrictive bill approved by a House committee in May and backed by Democrats.

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 Mae has said accounting errors from 2002 through 2004 could require it to restate $8.4 billion in earnings, while Freddie Mac 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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