WASHINGTON (MarketWatch) -- The federal government loosened strict capital requirements on Fannie Mae and Freddie Mac on Wednesday, allowing them to inject billions of dollars into the nation's sagging mortgage market by buying more loans.
The Office of Federal Housing Enterprise Oversight said it is reducing Fannie Mae's and Freddie Mac's capital-surplus requirement to 20% from 30% previously. The companies will be clear to invest the freed-up capital in mortgages and mortgage-backed securities.
The move is expected to add up to $200 billion of immediate liquidity to the market for mortgage-backed securities. Wednesday's move by Ofheo, combined with other actions, should enable the two companies to buy or guarantee about $2 trillion in mortgages this year.
The government is pulling out all the stops in the mortgage market. I'm sure the Fed asked for this; they have been facing major pressure to start buying mortgages directly and permanently rather than just taking them as collateral for short term loans. For obvious reasons they didn't want to do that so Fannie and Freddie will fill the gap. Between the Fed and the agencies a lot of money has been thrown at the mortgage market in the last three weeks. Only time will tell if it is enough.