Fannie, Freddie Loan Portfolio Limits Raised to Ease Crisis

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Includes: FMCC, FNMA
by: Judy Weil

After a Fed Funds rate cut and an easing of Federal Housing Administration loan restrictions Tuesday, the Office of Federal Housing Enterprise Oversight [OFHEO] agreed Wednesday to allow government-backed mortgage financier Fannie Mae to enlarge its mortgage portfolios by 2% annualy, matching rival Freddie Mac's existing limit. Though Fannie and Freddie are still under a regulatory cloud for accounting irregularities earlier this decade, the OFHEO cited accounting and control improvements in allowing the new limits. Fannie and Freddie have yet to file timely financials. Portfolio caps for both entities will now be set at $735 billion, from Freddie's current $724B and Fannie's current $727B. Lawmakers and industry officials have also been pushing for higher loan limits on "jumbo mortgages" to enable the mortgage financiers to buy more loans and ease liquidity in the debt markets. Fed chief Ben Bernanke demurs, but told Congress that if approved, raising loan limits should be "explicitly temporary". Credit markets responded well to the government moves as yields on corporate bonds and loans fell. The asset-backed commercial paper market defrosted slightly before contracting again. The 3-month London Interbank Offered Rate [LIBOR] dropped to 5.24% after reaching 5.7% in early September. Fannie Mae shares rose $1.44 Wednesday, to $63.98. Freddie Mac's climbed $1.64, to $61.16.

Sources: Fannie Mae Press Release, Wall Street Journal, Bloomberg I,II Sign on San Diego, Reuters, New York Times, LA Times
Commentary: No Bids In Corporate Bond MarketSenator Chuck Schumer Wants To Raise Portfolio Limits At Fannie and FreddieThe 'Plunge Protection Team' Working Overtime: A Play-By-Play
Stocks/ETFs to watch: FNM, FRE

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