Fannie Mae ‘Prepared to Act’ if Portfolio Cap is Increased

Fannie Mae is fighting for its regulators to lift the company's investment limits so it can buy home loans and provide liquidity and stability in the market. Its regulator, the Office of Federal Housing Enterprise Oversight, told the company in 2006 that the company's portfolio would be capped at $727 billion, until Fannie Mae reformed some of its business practices. In a speech on Wednesday, CEO Daniel Mudd said, "We have vastly reduced our control weaknesses. We've come into compliance with all the major issues outlined in the consent agreement." Though progress was made, not all the remedial requirements were met and it was not enough for regulators; last month the OFHEO rejected Fannie Mae's request to increase its portfolio limit. "We're still continuing discussions. I don't have anything to announce to you today but we hope to get to the place where we can do more," added Mudd. The cap agreement does have terms that would allow James Lockhart, the director of OFHEO, to waive the cap if there are "market liquidity issues" or "other relevant information." Mudd highlighted that Fannie Mae was ready and "prepared to act." He may not have to wait too much longer if the mortgage markets and housing continue their current trends. Fannie Mae traded down 1.8% to $62.59 in midday trading Wednesday.

Sources: Reuters, Wall Street Journal
Commentary: Subprime Mortgage Lenders Don't Need Help From Fannie and Freddie -- Bernanke • Fannie Mae, Freddie Mac Soar on Possible Easing of Portfolio Limits
Stocks/ETFs to watch: FNM
Earnings call transcript: Fannie Mae Q4 2006

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