| March 19, 2008 Government eases capital restraints on mortgage companies
|
WASHINGTON (AP) - The government will free up billions of
dollars at Fannie Mae and Freddie Mac, money that would be used to
help homeowners refinance mortgages on the brink of default.
The Office of Federal Housing Enterprise Oversight, which
oversees the government-sponsored companies, announced a plan Wednesday that would ease mandatory capital requirements now in place.
That mandatory cash cushion - now nearly $20 billion for the two
- will be reduced by a third under the new deal. The freed-up money
will go toward buying mortgages of struggling homeowners to enable
them to refinance into more affordable loans.
The capital requirement for each company will be reduced from
the current 30 percent to 20 percent, one person familiar with the
discussions said. Under the deal, Fannie and Freddie will commit to
raise additional capital. That could be done through special sales
of stock or cuts in dividends. Together they will be expected to
provide up to $200 billion in new funding for home loans, the
person said.
People familiar with the matter spoke on condition of anonymity
because the plan hadn't yet been made public.
OFHEO, the federal agency, was holding a news conference with
its director, James B. Lockhart, Fannie Mae President and Chief
Executive Daniel Mudd, and Freddie Mac Chairman and CEO Richard
Syron.
Agency spokeswoman Stefanie Mullin declined to comment, as did
Fannie Mae spokesman Brian Faith. Spokesmen for Freddie Mac
couldn't
immediately be reached for comment Tuesday evening.
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.
It would be 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.
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.
(Copyright 2008 by The Associated Press. All Rights Reserved.)
Related Stories:
[17 weeks ago]
[17 weeks ago]
[15 weeks ago]
[23 weeks ago]
