Washington-based Fannie Mae and McLean-based Freddie Mac are expected to raise additional billions to buy and guarantee mortgages after their regulatory agency lowered the amount of capitalthey need to keep in reserve from 30 percent to 20 percent.
As part of the deal, the two companies pledged to raise “significant” capital.
The Office of Federal Housing Enterprise Oversight, which granted the permission, hopes this move will immediately bolster the mortgage-backed securities market by as much as $200 billion.
“Knowing that support is there will make markets more stable and confident and help ensure long-term recovery,” said James B. Lockhart, OFHEO director.
“We will work to … help borrowers struggling to keep their homes,” said Fannie Mae President and Chief Executive Officer Daniel H. Mudd in a statement.
Lockhart predicts this measure, combined with a change in late February removing the portfolio caps on the two enterprises, will allow them to purchase or guarantee around $2 trillion in mortgages and mortgage-backed securities in 2008.
This “is only good news” for Fannie Mae and Freddie Mac, said Gary Gordon, an analyst at Portales Partners LLC in New York.
The mortgage giants plan to purchase more “affordable loans; loans that refinance borrowers out of subprime ARMs and into safer prime, fixed-rate products; jumbo-conforming loans; and multifamily mortgages that finance affordable rental housing,” said Mudd.
Bloomberg News contributed to this report.
