Plans Would Boost Funds For Mortgages

The Bush administration, in an effort to stabilize the housing market, is preparing two initiatives aimed at creating more funding for mortgages by relaxing constraints on Fannie Mae, Freddie Mac and the Federal Housing Administration.
By: Damian Paletta: The Wall Street Journal Online
Both efforts are in advanced planning stages, though neither has received final approval.

The Office of Federal Housing Enterprise Oversight, which regulates Fannie Mae and Freddie Mac, is close to reducing - but not eliminating - an excess-capital requirement for the government-sponsored entities, people familiar with the matter said. This would give the companies more flexibility to buy and securitize loans. That, in turn, would allow the companies to play a bigger role in helping the housing market regain its footing.

Fannie Mae and Freddie Mac would both be expected to raise more capital, providing more of a shock absorber against potential losses.

"I'm anticipating a conversation we'll be having with Fannie and Freddie about acquiring more capital here," Senate Banking Committee Chairman Christopher Dodd told reporters yesterday. The Connecticut Democrat said the companies would have to find a way to "walk the line between protecting shareholder interest" and meeting their mission to promote affordable housing.

Federal Reserve Chairman Ben Bernanke met with Fannie Mae Chief Executive Daniel Mudd yesterday. The session had been scheduled for several weeks. Both Mr. Bernanke and Treasury Secretary Henry Paulson have urged Fannie Mae and Freddie Mac to raise more capital. That would give the companies more leeway to pump liquidity into the conforming- and jumbo-loan markets.

"We are putting things in place that give Fannie and Freddie good stuff to buy," House Financial Services Committee Chairman Barney Frank (D., Mass.) said in an interview.

If the companies raised more capital, they would have more leverage as they negotiate with the administration over legislation to overhaul their supervision. Spokesmen for Fannie Mae, Freddie Mac and their regulator declined to comment.

Separately, officials at the Department of Housing and Urban Development have talked recently with the White House's Office of Management and Budget about a proposal to allow more people to qualify for mortgages insured by the FHA. Such insurance gives lenders more confidence to make loans.

So far, HUD's efforts to insure more mortgages have had a limited impact, mainly because it is hard for financially distressed homeowners to qualify. Homeowners who have missed a payment in the past six months aren't eligible for FHA insurance. HUD spokeswoman DJ Nordquist said the agency was "still in the discussion stages" about changes and did not have a new policy to announce.