Feds Say No To Lifting Fannie, Freddie Investment Caps

Earlier we passed on an Associated Press report on pleas by Fannie Mae and Freddie Mac to lift an investment cap limiting the size of their portfolios. After the markets closed, federal regulators said nothing doing. Here's the AP report:

By Marcy Gordon
Associated Press

The government on Friday said it will not ease investment limits on home-loan finance giants Fannie Mae and Freddie Mac. The companies had argued that allowing them to take on more debt would help pump cash into the struggling mortgage market.

The announcement by the Office of Federal Housing Enterprise Oversight came at the end of a week of speculation that the regulators would allow the government-sponsored companies a wider investment berth. The companies' shares had soared on Wall Street in an otherwise skidding market.

OFHEO Director James B. Lockhart said the risk of allowing the two companies to take on more debt was too great. Combined, Fannie and Freddie hold or guarantee two-thirds of all U.S. home mortgages. "Their safety and soundness is of paramount importance," Lockhart said.

It was Lockhart's office that installed caps last year on the companies' mortgage investment holdings in response to multibillion-dollar accounting scandals at the two companies in recent years. Fannie's cap is set at $727 billion, Freddie's at $724 billion.

"The marketplace should have confidence that (the companies') securities are trading efficiently," Lockhart said in a statement. He said the agency would keep the request for an increase "under active consideration" and continue to reassess the issue.

By Dan Beyers  |  August 10, 2007; 6:32 PM ET  | Category:  Fannie Mae
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