Federal regulators say they’re giving Fannie Mae and Freddie Mac additional leeway to buy up to $200 billion in mortgages and mortgage-backed securities by relaxing stringent capital requirements put in place in 2004 in the wake of management and accounting scandals.

Fannie and Freddie have agreed to raise "significant capital" to stay "well in excess" of the loosened requirements, which should allow the government-sponsored entities (GSEs) to purchase or guarantee $2 trillion in mortgages this year, according to the Office of Federal Housing Enterprise Oversight.

That capacity will permit Fannie and Freddie to "do more" in the jumbo temporary conforming market, subprime refinancing and loan modifications areas, OFHEO said in a press release.

The move follows a decision by OFHEO last month to lift a $1.5 trillion cap on loans and mortgage-backed securities the GSEs were allowed to buy and hold as investments (see Inman News story).

Fannie and Freddie provide liquidity to the secondary market for loans in two ways: by buying and holding mortgages and mortgage-backed securities (MBS) as investments, and by securitizing and guaranteeing large pools of loans that are sold to other investors.

Mortgage Bankers Association Kieran Quinn called OFHEO’s action "a crucial step" in jumpstarting the stalled mortgage market.

"This immediate injection of liquidity reestablishes the pipeline of funds flowing from secondary-market mortgage purchasers to primary market lenders," Quinn said in a statement. That, in turn, makes it easier for lenders to offer financing to a wide variety of borrowers, including those looking to refinance.

By the end of the year, Fannie Mae had amassed $45.4 billion in core capital, a 9.3 percent cushion above the $41.5 billion required under the consent order. Freddie Mac’s $37.9 billion in core capital gave it a 10 percent surplus above its $34.4 billion OFHEO requirements.

"Fannie Mae and Freddie Mac have played a very important and beneficial role in the mortgage markets over the last year," OFHEO Director James Lockhart said in a statement. Both companies have "prudent" capital cushions and have increased their reserves, he said, and OFHEO believes the GSEs "can play an even more positive role in providing the stability and liquidity the markets need right now."

***

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