WASHINGTON - The regulator for secondary mortgage market giants Fannie Mae and Freddie Mac agreed last week to reduce the capital the firms must hold, allowing them to buy more mortgages, in an effort to help boost the ailing housing market.
The Office of Federal Housing Enterprise Oversight, known as OFHEO, said it was initially reducing the 30% capital surplus it requires of the firms to 20%.
The regulator said the move could provide up to $200 billion in immediate liquidity to the troubled mortgage-backed securities market. It will allow the companies to buy or guarantee some $2 trillion in mortgages this year, OFHEO said.
As part of the plan both companies have agreed to raise additional capital, probably by issuing preferred shares.
“Let me be clear–both companies have prudent cushions above the OFHEO-directed capital requirements and have increased their reserves,” OFHEO Director James Lockhart said in a statement. “We believe they can play an even more positive role in providing the stability and liquidity the markets need right now.”
The move comes just two weeks after Congress passed a stimulus bill that will allow the two companies to buy larger, so-called jumbo loans, in high-priced markets, adding much-needed liquidity to those areas.
Counties in which mortgages are eligible to the highest of the new limits are primarily located in California, Colorado, Hawaii, Maryland, New Jersey, New York, Virginia and Washington, D.C.
The new limits are a function of median home prices estimated by the Department of Housing and Urban Development. The newly increased limits range from $417,500 in Greeley, Colo., to the highest of $793,750 in Honolulu.
