Daniel Mudd, chief executive of mortgage lender Fannie Mae, told CNBC that the housing slump won't hit bottom for another year and that the current credit crunch will spread “all across the housing market.”
In an interview, Mudd said Fannie Mae is seeking regulatory approval to increase its lending limits in order to put more liquidity back in the mortgage market, which has been hurt by growing subprime lending troubles and tightening credit.
“We’re ready to start investing now,” Mudd said. A lot of "people and institutions in the middle of the system" could benefit from the increased liquidity, he added, including subprime borrowers.
Mudd also believes the housing slump is likely to get worse before it gets better. “We don’t see a bottom until the second half of next year,” he said. "The question is what can we do to make that as moderate a downturn as possible, and the answer is to us is liquidity."
Shares of Fannie Mae and Freddie Mac , the largest providers of money for U.S. home mortgages, jumped earlier this week on speculation that regulatory restrictions limiting the size of their portfolios might be lifted.
Lifting current limits could allow the companies to dramatically boost their combined $1.4 trillion portfolios. With their buying power and goals to promote homeownership, the companies could help stave off a budding credit crunch caused by a crisis in subprime mortgages, analysts said.
Currently, Fannie Mae and Freddie Mac are limited in how much they can increase their mortgage holdings due to limits negotiated between the companies and their regulator, the Office of Federal Housing Enterprise Oversight, in response to failures in financial reporting and more than $11 billion of accounting errors at the companies.
In the CNBC interview, Mudd said Fannie Mae and Freddie Mac can't buoy the mortgage market by themselves.
"We’re not going to be the only ‘saviors’ out there," he said. "There are a lot of institutions that need to play a role.”