Fannie, Freddie Cleared to Buy More Mortgages

The regulator of Fannie Mae and Freddie Mac eased capital requirements for the two housing finance agencies, allowing them to pump up to $200 billion into the distressed U.S.mortgage market.

The regulator, the Office of Federal Housing Enterprise Oversight, said it was lowering to 20 percent from 30 percent the amount of extra capital the companies had been required to hold after their accounting irregularities, and will consider further reductions.

In addition, the companies will begin to raise "significant capital," OFHEO said in a joint statement with Fannie Mae and Freddie Mac.

"This capacity will permit them to do more in the jumbo temporary conforming market, subprime refinancing and loan modifications areas," OFHEO said, referring to the easing of the capital constraints.

The regulator said Fannie Mae was in "full compliance" with government restrictions placed on the company for accounting irregularities, while Freddie Mac had to clear one more hurdle relating to the separation of the roles of the chairman and chief executive officer.

Freddie Mac has already said it is splitting what had been a co-CEO/chairman job and was currently searching for a new chief executive.

The regulator said it expects to fully remove special regulatory constraints placed on the companies in the aftermath of book-keeping scandals, which in Freddie Mac's case came to light in mid-2003 and in 2004 for Fannie Mae.

Increased investment by Fannie Mae and Freddie Mac is expected to bolster confidence in a secondary mortgage market shaken by a wave of failing home loans. Cratering prices and a sell-off of mortgage-related assets this year have worsened the credit crunch, which may be tipping the U.S. economy into recession.

Copyright 2008 Reuters. Click for restrictions.