The day after the FED cut interest rates by .75 basis points another key announcement was made. The office of Federal Housing Enterprise Oversight better known as OFHEO, Fannie Mae and Freddie Mac's regulator, unveiled a reduction of the capital the firms must hold to 20% from 30% previously. Ofheo said the move could provide up to $200 billion in immediate liquidity to the troubled mortgage-backed securities market. "We believe they can play an even more positive role in providing the stability and liquidity the markets need right now," Ofheo Director James Lockhart said in a statement.
OFHEO estimates that Fannie Mae's and Freddie Mac's existing capabilities, combined with this new initiative and the release of the portfolio caps announced in February, should allow the GSEs to purchase or guarantee about $2 trillion in mortgages this year. This capacity will permit them to do more in the jumbo temporary conforming market, subprime refinancing and loan modifications areas
Treasury Secretary Paulson lauded the move. "Additional capital will enable the companies to help more homeowners and will strengthen the underlying fundamentals of the mortgage market," he said. To read the official press release from OFHEO click OFHEO, FANNIE MAE AND FREDDIE MAC ANNOUNCE INITIATIVE TO INCREASE MORTGAGE MARKET LIQUIDITY.
To me this is a much bigger announcement then the FED's rate cut of .75 basis points yesterday. This will definitely help the California and Orange County housing market with the new jumbo conforming loans and creating more liquidity.
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