Billions more for Fannie, Freddie lending
WASHINGTON (AP) - March 19, 2008 The initiative, which will require Fannie and Freddie to raise
substantial funds, is part of a broader government strategy to ease
a credit crisis that has made it difficult for consumers and
businesses to borrow, and spread fear throughout global financial
markets.
The Office of Federal Housing Enterprise Oversight, which
oversees the government-sponsored companies, said the mandatory
cash cushion for Fannie and Freddie - now nearly $20 billion for
the two - will be reduced by a third under the new plan. The goal
is to free-up money to help new home buyers take out loans and to
help existing home owners refinance into more affordable mortgages.
The capital requirement for each company will be reduced from
the current 30 percent to 20 percent, and further reductions will
be considered by the regulator in the future. Fannie and Freddie
will likely raise billions of dollars through special sales of
stock.
"Fannie Mae and Freddie Mac have played a very important and
beneficial role in the mortgage markets over the last year," OFHEO
Director James B. Lockhart said at a news conference. "We believe
they can play an even more positive role in providing the stability
and liquidity the markets need right now."
The companies' shares were buoyed by news of the agreement.
Fannie stock jumped $2.64, or 9.4 percent, to $30.86 in late
morning trading, while Freddie shares advanced $2.98, or 11.4
percent, to $29. The companies' shares have plummeted to fresh
52-week lows in recent weeks amid concern over their ability to
find buyers for their mortgage-linked securities amid plunging home
prices and rising foreclosures.
The new agreement was the third step the government has taken in
recent weeks to allow Washington-based Fannie and McLean, Va.-based
Freddie to shoulder larger burdens in the mortgage market despite
their multibillion-dollar fourth-quarter losses and expectations of
further red ink this year.
The $168 billion economic stimulus package enacted last month
included a temporary increase in the cap on mortgages that the
companies can purchase or guarantee, from $417,000 to $729,750 in
high-cost markets. And, as a reward for filing timely financial
statements following multibillion-dollar accounting scandals,
Fannie and Freddie were freed on March 1 of a combined $1.5
trillion cap on their mortgage-investment holdings.
OFHEO estimated that the combination of these efforts should
allow Fannie and Freddie to purchase or guarantee roughly $2
trillion in mortgages this year.
The two companies together hold or guarantee around $4.9
trillion in home-loan debt. As the mortgage crisis and ensuing
credit crunch have worsened in recent months, policy makers have
increasingly looked to them to step up their participation in the
hobbled market for securities backed by mortgages.
"This is what (Fannie and Freddie) were put in place for. ...
And we will deliver," Freddie Mac Chairman and CEO Richard Syron
said.
Influential Democratic lawmakers have been pushing for a
reduction in the companies' capital-holding requirements. Bush
administration officials and numerous Republican lawmakers, on the
other hand, have long opposed allowing Fannie and Freddie to take
on more debt, contending that doing so could threaten the global
financial system.