Tuesday, April 08, 2008

Confidence Down? Call Aunt Fannie

The Fed has allowed Fannie Mae and Freddie Mac to ease capital requirements, allowing them to pump up to $200 billion into the distressed US mortgage market.

This was done by lowering to 20 percent from 30 percent the amount of extra capital the companies are required to hold.
The extra $200 billion would allow Fannie Mae and Freddie Mac to purchase both existing mortgage-backed securities and new home loans originated by banks. It could also enable them to increase their business of guaranteeing mortgages, a key to helping pull the US housing market out of its fall.

Our mortgage guru, Freddie Torres, notes that Fannie Mae and Freddie Mac have morphed into the backbone of the mortgage market, as most private sources of financing have evaporated. Fannie, Freddie and the Federal Home Loan Banks, a network of bank co-operatives founded during the Great Depression, provided 90% of the financing for new mortgages at the end of 2007.

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