The government today nudged higher the investment caps for home-loan finance companies Fannie Mae and Freddie Mac in an effort to alleviate strain in the mortgage market.
Democratic lawmakers have been clamoring for such a change for weeks, though the federal regulators' action &
which allows Fannie and Freddie to take on about 2 percent more debt &
did not go as far as they, or the companies, had hoped.
Sen. Charles Schumer, D-N.Y., who has been among the most vocal proponents of an easing of the companies' investment limits as an aid in the mortgage-market turmoil, called the new increase "small." Schumer recently proposed legislation that would allow the companies' portfolio limits to be raised by 10 percent.
The Office of Federal Housing Enterprise Oversight, which oversees Fannie Mae and its government-sponsored sibling Freddie Mac, last month turned down Fannie Mae's request for a 10 percent lift of the cap on its mortgage investment holdings, now set at $727 billion. The agency said today Fannie Mae can increase its mortgage portfolio by 2 percent a year, or up to 0.5 percent per quarter, starting Oct. 1.
OFHEO said it will set the portfolio cap for both companies at $735 billion. Freddie Mac's currently is at $724 billion.
The move came a day after the Federal Reserve lowered interest rates to bolster the economy and the House approved a plan, 348-72, to expand backing of mortgages by the Federal Housing Administration as a way to help struggling homeowners avoid foreclosure. Similar legislation is being considered in the Senate.
"These changes will make it easier for the (companies) to manage market-based fluctuations in their portfolios," OFHEO Director James B. Lockhart said in making the announcement. Although the two companies have made progress toward correcting financial weaknesses that led to their accounting scandals of recent years, Lockhart said, the agency has decided "that it would not be prudent at this time to allow any major increases in the portfolio levels" because some deficiencies remain.
It was OFHEO that imposed the caps last year on the companies' mortgage investment holdings in response to their multibillion-dollar accounting lapses, thereby limiting their share of the $3.5 trillion global market for securities backed by home mortgages.
Spokesmen for the companies said the regulators' move, while positive, was insufficient.
"... It provides us some limited flexibility," Fannie Mae spokesman Brian Faith said in a statement. "However, we still believe the more effective response, given the extent of the market disruption, would be to raise our portfolio cap by at least 10 percent so that we can more fully address the ongoing turmoil and bring much-needed liquidity to the mortgage market."
Freddie Mac's David Palombi said that lifting the caps "more broadly ... would provide a much-needed backstop bid for mortgages, sending a positive signal to the markets."
Shares of the two companies gained about 4 percent after OFHEO's announcement. Fannie was at $65.39, up $2.85; Freddie rose $2.46 to $61.98.
On the Net:
Fannie Mae: http:www.fanniemae.com
Freddie Mac: http:www.freddiemac.com
Office of Federal Housing Enterprise Oversight: http:www.ofheo.gov
Regulators ease limits on Fannie Mae's mortgage debt