WASHINGTON – The regulator for secondary mortgage market giants Fannie Mae and Freddie Mac yesterday agreed to reduce the capital the firms must hold against potential mortgage defaults, 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 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.
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.
