Regulators could increase competition against Fannie Mae and Freddie Mac by lowering capital requirement on mortgage loans, Federal Housing Finance Board Chairman Bruce Morrison said Friday.

If capital requirements were reduced, banks that borrow from Home Loan banks could more profitably hold mortgages on their balance sheets rather than sell them to the government-sponsored enterprises. That would create new competition for housing finance.

"The amount of capital that depositories have to hold could come down, and if it does go down, prices will go down and competition will go up," Mr. Morrison told members of Women in Housing and Finance, a public policy group. "That is something that I hope will be on the agenda at the dawn of the 21st century."

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