NEW YORK (CNN) - Federal Reserve Chairman Alan Greenspan Thursday suggested that the nation's mortgage lending giants, Fannie Mae and Freddie Mac, are taking advantage of their implicit government subsidy to pad their profits with investments that are too risky, which is not helping the nation's homeowners.

"The Federal Reserve has been unable to find any credible purpose for the huge balance sheets built by Fannie and Freddie other than the creation of profit through the exploitation of the market-granted subsidy," Greenspan said in a speech at a conference sponsored by the Federal Reserve Bank of Atlanta.

At the same time that Greenspan was speaking, Fannie Mae was deemed "adequately capitalized" as of March 31 by its chief regulator, the Office of Federal Housing Enterprise Oversight (OFHEO), with a projected surplus over its minimum capital requirements sufficient to absorb the uncertain impact of accounting errors on its capital.

OFHEO, which oversees both Fannie Mae (Research) and Freddie Mac (Research), had classified Fannie as "significantly undercapitalized" as of Dec. 31. By law, the regulator classifies Fannie and Freddie as adequately capitalized, undercapitalized, significantly undercapitalized or critically undercapitalized.

Accounting problems at Fannie are still being investigated and may result in an earnings restatement of as much as $11 billion. But OFHEO said the company was "on target and has adequate contingencies in place" to hit its required level of a 30 percent surplus over minimum capital by Sept. 30.

Fannie Mae and its smaller cousin, Freddie Mac, were created by Congress to provide financing for the $8 trillion home-mortgage market. They are called "government-sponsored enterprises," or GSEs.

Fannie and Freddie buy up billions of dollars of home loans each year, for which they guarantee repayment, and then bundle them into what are called "mortgage-backed securities."

They also issue bonds called "agency bonds" to fund their mission. These bonds are considered only a little riskier than U.S. Treasury bonds and therefore are widely held by big institutional investors and by some small investors.

Mortgage-backed securities are also highly popular among investors around the world. For one thing, they are backed by a very high-quality collateral: people's homes. Also, Fannie and Freddie both have a small but guaranteed line of credit with the Treasury Department to fall back on in the event there were widespread mortgage defaults and the value of their portfolio fell.

This line of credit is at the heart of a long-running battle between the GSEs and their competitors -- big banks and mortgage companies.

The competitors say this gives Fannie and Freddie an unfair advantage in the mortgage-lending market. They have argued for years that Fannie and Freddie are able to sell their securities at lower interest rates -- which means a higher price and more profit -- because the small guaranteed loan subsidy is taken by big investors as a sign that the federal government would step in and bail out Fannie and Freddie if their loans turned sour.

That is the kind of thing that could happen if the most dire fears of a housing bubble collapse triggered a sudden downturn in home prices, or if a recession made some homeowners incapable of paying back their mortgages and they had to default.

Fannie Mae, on its official Web site, does not deny that the subsidy exists but instead argues that the government does not guarantee all its loans, saying that its financial prospectuses "clearly state that the U.S. government does not back the company's debt instruments."

And it argues that the commercial banks have various kinds of government support, such as deposit insurance, that allow them to borrow money more cheaply than Fannie Mae does.

Some economists say there is no level playing field here, and it's hard to say who gets more support from the government. While Fannie and Freddie may have an advantage the banks don't, the economists point out that Fannie and Freddie have blazed the way for competitive mortgage products that have helped to revolutionize the mortgage lending industry in ways that the more conservative, less innovative banks had not in the past.

In Thursday's remarks Greenspan seemed to side Fannie and Freddie's competitors.

"The strong belief of investors in the implicit government backing of the GSEs does not by itself create problems of safety and soundness for the GSEs but it does create systemic risks for the U.S. financial system as the GSEs become very large," he said.

Over the past few years Greenspan has moved from some gentle nudging of Fannie Mae and Freddie Mac to Thursday's outright criticism. In particular, he singled out Fannie's and Freddie's giant portfolios of mortgage-backed securities as being too risky to back up the mortgage finance system in the event of a crisis, and argued that only ultra-safe, ultra-conservative U.S. Treasury bonds would do the trick.

"Indeed, only such highly liquid portfolios would be consistent with (government-sponsored enterprises') mission of providing primary mortgage market liquidity during a crisis, particularly a financial crisis," Greenspan said.

The outcome of this debate has important implications for consumers. In the short-term, if Congress reins in Fannie and Freddie by putting stricter limits on the size of the portfolios they can build, the amount of mortgage financing they can issue, and the kinds of securities they can hold in, this could -- all else being equal -- mean their cost of borrowing would rise and the cost of home mortgage loans could go up, resulting higher mortgage rates for home buyers.

In the longer run, if such a move were to make Fannie's and Freddie's investment base less risky, it could mean that the U.S. financial system would be able to weather storms such as a recession or a big pullback in the housing market without any kind of meltdown.