US Government Cuts Capital Requirements for Fannie and Freddie

The Office of Federal Housing Enterprise Oversight announced Wednesday that it has cut the government-sponsored mortgage investors’ surplus capital requirement to 20 percent from 30 percent for Fannie Mae and Freddie Mac.

The office estimates that this reduction, in combination with the release of portfolio caps announced last month, should provide up to $200 billion of immediate liquidity to the mortgage-backed securities market, and allow Fannie Mae and Freddie Mac to purchase or guarantee about $2 trillion in mortgages this year.

This could mean significant news to our local real estate market. Credit is harder to come by due to more stringent lending practices in the wake of the sub-prime mortgage melt down. With the changes to Fannie and Freddie they will have more liquid capital to purchase more mortgages hopefully resulting in more credit being offered to home buyers.

All of these changes are a directed effort by the leadership of Fannie and Freddie to add liquidity to the mortgage market while keeping up both investor and home buyer confidence in the system. Both agencies have seen significant changes in the last few months including the clearance to purchase larger loans (jumbo) up to $729,250 in some areas. These changes are designed to help stimulate home sales and keep the economy moving forward.

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