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
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.
This reduction combined with the increase of the portfolio caps announced last
month should allow Freddie and Fannie to purchase or guarantee about $2
trillion in mortgages
this year. This capacity should allow them to
assist in subprime refinancing and loan modifications and do more in the jumbo
mortgage market which they have been granted temporary permission to enter.
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."