Mortgage stimulant
WASHINGTON
(AP) — The government on Wednesday relaxed capital requirements at Fannie
Mae and Freddie Mac as part of a plan to quickly inject an additional $200
billion of financing for home loans.
The
initiative, which will require Fannie and Freddie to raise substantial funds,
is part of a broader government strategy to ease a credit crisis that has made
it difficult for consumers and businesses to borrow, and spread fear throughout
global financial markets.
The
Office of Federal Housing Enterprise Oversight, which oversees the
government-sponsored companies, said the mandatory cash cushion for Fannie and
Freddie — now nearly $20 billion for the two — will be reduced by a
third under the new plan. The goal is to free-up money to help new home buyers
take out loans and to help existing home owners refinance into more affordable
mortgages.
The
capital requirement for each company will be reduced from the current 30
percent to 20 percent, and further reductions will be considered by the
regulator in the future. Fannie and Freddie will likely raise billions of
dollars through special sales of stock.
“Fannie
Mae and Freddie Mac have played a very important and beneficial role in the
mortgage markets over the last year,” OFHEO Director James B. Lockhart said at
a news conference. “We believe they can play an even more positive role in
providing the stability and liquidity the markets need right now.”
The new
agreement was 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.