Tags: Freddie Mac

Fannie Mae and Freddie Mac Poised to Boost U.S. Mortgage Market

By , Money Morning •

By Jennifer Yousfi
Managing Editor

A loosening of government restrictions announced yesterday (Wednesday) for Fannie Mae (FNM) and Freddie Mac (FRE) has freed up an estimated $200 billion to boost the flagging mortgage market.

The Office of Federal Housing Enterprise Oversight (OFHEO) announced it is reducing the capital surplus requirement of both Fannie Mae and Freddie Mac to 20% from 30% - a move that will immediately free up billions in capital for the two mortgage giants to offer affordable loans to homeowners desperate to refinance.

"We believe they can play an even more positive role in providing the stability and liquidity the markets need right now," OFHEO Director James Lockhart said in a statement.

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Freddie Mac and Fannie Mae are both government-sponsored enterprises and had been required to hold capital surpluses above normal standards due to a prior accounting scandal. Lockhart was quick to assure that both firms would still maintain an adequate liquidity cushion at the new reduced levels.

Treasury Secretary Henry Paulson welcomed the move, saying that freeing up additional capital "will enable the companies to help more homeowners and will strengthen the underlying fundamentals of the mortgage market," MarketWatch reported.

The latest move comes on the heels of an OFHEO decision to raise the cap on mortgages that the companies can purchase or guarantee, from $417,000 to $729,750 in high-cost markets, The Washington Post reported. As of March 1, the restriction to hold the two companies to a combined cap of $1.5 trillion in mortgage-investment holdings was also abolished.

The combination of these efforts mean Freddie Mac and Fannie Mae could purchase or guarantee as much as $2 trillion in mortgages.

The goal is to "help restart the housing engine that powers our economy," Fannie Mae Chief Executive Officer Daniel Mudd said at a news conference in Washington yesterday, Bloomberg News reported.

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