Capital requirement for Fannie Mae & Freddie Mac lowered

In a recent development OFHEO (Office of Federal Housing Enterprise Oversight) announced increase in liquidity of the MBS (Mortgage Backed Securities) market by as much as $200 billion.

According to OFHEO, Fannie Mae & Freddie Mac will be allowed to invest a significant portion of the thirty percent capital surplus they have to maintain into mortgages & mortgage-backed securities. Reduction in capital requirements to 20% has been called as "appropriate" by Office of Federal Housing Enterprise Oversight & it may further reduce this capital requirement in future.

In combination with the increase of portfolio caps this reduction in capital requirement will allow the 2 GSEs (Government Sponsored Enterprises) to guarantee or purchase about $2 trillion in mortgage in this current year. This purchasing capacity will allow the 2 GSEs provide assistance in subprime refinancing, loan modification & also do more of jumbo mortgages, for which they have got permission now.