Fannie & Freddie raising more capital

(OFHEO) - The Office of Federal Housing Enterprise Oversight said: that it will allow government sponsored enterprises: Fannie Mae and Freddie Mac to use a portion of their capital surplus to invest in mortgages and mortgage-backed securities.

OFHEO estimates that Fannie and Freddie’s existing capabilities, combined with the initiatives, will allow both enterprises to purchase or guarantee about $2 trillion in mortgages this year.

Both companies will raise significant capital, and maintain overall capital levels in excess of requirements. The regulator said it is lowering the 30% capital requirements to 20% and will consider further reductions in the future.

The initiative is expected to provide up to $200 billion of immediate liquidity to the mortgage-backed securities market. Coupled with the release of portfolio caps announced in February, the companies should be able to purchase or guarantee about $2 trillion in mortgages this year.

James Lockhart, the director of the OFHEO, said in a press release that the companies have cushions above the regulator’s requirements and have also increased their reserves.