THE US Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan and Mortgage Corporation (Freddie Mac), the US government-chartered mortgage financiers, yesterday got the go-ahead from their regulator to pump as much as $200 billion (€128.17 billion) of liquidity into the beleaguered US mortgage market.
The Office of Federal Housing Enterprise Oversight (Ofheo) reduced surplus regulatory capital requirements for the mortgage companies from 30 per cent to 20 per cent and secured a commitment that they will each soon raise a "significant" amount of new capital to allow them to buy and guarantee more mortgages.
Ofheo said the move was an attempt to give Fannie and Freddie the flexibility to support the highly distressed market for so-called "jumbo" mortgages greater than $417,000, as well as the capacity to refinance more subprime home loans and conduct loan modifications for struggling borrowers.
"Both companies have prudent cushions above the Ofheo-directed capital requirements and have increased their reserves," said James Lockhart, director of Ofheo. "We believe they can play an even more positive role in providing the stability and liquidity the markets need right now."
Freddie's shares were 13 per cent higher in morning trade yesterday, while Fannie Mae was 10 per cent higher.
Henry Paulson, US treasury secretary, said the decision was "encouraging" and should provide a boost for the mortgage market.
But some analysts doubted the new flexibility for the agencies would go far enough. Josh Rosner, consultant at Graham Fisher, said: "This will make a psychological difference in the short term, but the agencies are not going to be very aggressive - they have become very risk averse from a credit perspective."
Dan Alpert, managing partner of Westwood Capital, an investment bank, said: "Washington believes this is a liquidity crisis. But this is a credit crisis brought on by the falling value of underlying housing assets."
The 30 per cent regulatory capital surcharge was imposed on the mortgage financiers after past accounting scandals.
In the current crisis, however, it has led mortgage investors to worry that capital constraints could limit Fannie's and Freddie's ability to buy mortgages.
- (Financial Times)
