Fannie Mae and Freddie Mac Capital Requirements

OFHEO Lowers Capital Requirements for GSEs to Improve Market Liquidity

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The Office of Federal Housing Enterprise Oversight (OFHEO) which oversees operation of Fannie Mae and Freddie Mac late Tuesday announced a major initiative in cooperation with the two government sponsored enterprises (GSEs) to increase, by perhaps as much as $200 billion, the liquidity of the mortgage-backed securities market.

OFHEO announced that it would begin to allow the two GSEs to invest a significant part of the 30 percent capital surplus they have been required by OFHEO to maintain into mortgages and mortgage-backed securities. OFHEO said it was "appropriate" to reduce the capital requirements to 20 percent and that it may consider further reductions in the future.

$2 trillion in mortgages

Both GSEs announced that they will begin the process to raise significant capital and would maintain overall capital levels well in excess of requirements.

"Fannie Mae and Freddie Mac have played a very important and beneficial role in the mortgage markets over the last year," said OFHEO Director James Lockhart. "Let me be clear - both companies have prudent cushions above the OFHEO-directed capital requirements and have increased their reserves. We believe they can play an even more positive role in providing the stability and liquidity the markets need right now. OFHEO will remain vigilant in supervising the safe and sound operations of these companies, and will act quickly to address any deficiencies that may arise. Furthermore, we recognize the need to ensure that their capital levels are strong, protecting them from unforeseen risks as the market recovers."

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Just more risk for U.S. residents. The only honest solution is to allow everything to unwind without the governments tinkering. It will unwind no matter what, the only question is who will pay for it? They are already destroying the value of our currency! Why not access fees on the entire financial industry rather than further burden the tax payer?

Above Posted By: reality | Thu, 20 Mar 2008 13:53:28 EST

This is good news, but I guess just don't get how in the long term this will help the Mortgage Backed Securities market be liquid.

Above Posted By: PurpleFlash | Wed, 19 Mar 2008 13:25:54 EST

The Fed is working its magic, the last few days they have come up with many new ideas to help the credit market, financial market, and the mortgage market. The bottom is here, get ready for a summer mtg boom.

Above Posted By: James Hammer | Wed, 19 Mar 2008 10:23:58 EST

OFHEO Lowers Capital Requirements for GSEs to Improve Market Liquidity

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