One way the Congress could constrain the size of these balance sheets is to alter the composition of Fannie’s and Freddie’s mortgage financing by limiting the dollar amount of their debt relative to the dollar amount of mortgages securitized and held by other investors.
Although it is difficult to know how best to set such a rule, this approach would continue to expand the depth and liquidity of mortgage markets through mortgage securitization but would remove most of the potential systemic risks associated with these GSEs.