Limits on the size of the investment portfolios held by Fannie Mae and Freddie Mac could be completely removed by February, provided they file timely and audited financial statements, the WSJ reported Saturday. The Office of Federal Housing Enterprise Oversight (Ofheo) imposed limits on the two government-backed mortgage financers in 2006 because of accounting improprieties. They currently have a collective $1.4 trillion worth of loans and securities in their portfolios. "There's a reasonable chance that the caps will be lifted or changed significantly [by February]," said Ofheo Director James Lockhart. Some in Washington, like Sen. Charles Schumer (D-NY), have argued the companies should be permitted to securitize more expensive mortgages to add liquidity to the mortgage market. "If [Lockhart] agrees with lifting the caps eventually, there's no good reason not to do it now, before the foreclosure horse leaves the barn," he said. Others, like Fed Chair Ben Bernanke, oppose the move (see full summary). Treasury Secretary Henry Paulson acknowledged Thursday that an easing of the mortgage giants' portfolio restrictions would help the mortgage market, but said any such action should be linked to reform regulation. Last month, Fannie Mae requested permission to hold 10% more in its portfolio; Ofheo has granted it a 2% increase.
Sources: Wall Street Journal, MarketWatch
Commentary: Fannie, Freddie Loan Portfolio Limits Raised to Ease Crisis • Senator Chuck Schumer Wants To Raise Portfolio Limits At Fannie and Freddie • Fannie Mae, Freddie Mac Soar on Possible Easing of Portfolio Limits
Stocks/ETFs to watch: FNM, FRE. ETFs: PRFF, RPV, IYG, IYF
Earnings call transcript: Freddie Mac Q1 2007
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