Fannie Mae, Freddie Mac Soar on Possible Easing of Portfolio Limits

Government-backed mortgage lenders Fannie Mae and Freddie Mac surged 10.4% to $62.50 and 7.7% to $60.00, respectively, Monday, on news that Fannie Mae has approached the Office of Federal Housing Enterprise Oversight [Ofheo] to request permission to take on more mortgage assets. The rise was Fannie Mae's biggest in five years, and accompanied a 2.4% rise in the broader S&P 500. An assent by the regulator to relax lending restrictions would enable the lender to provide more market liquidity. "There is significant pressure coming from lenders to the regulators asking for steps like that," said mortgage-industry consultant Howard Glaser. "Lenders themselves are requesting Ofheo allow Fannie Mae and Freddie Mac to step in." Ofheo currently restricts Fannie Mae's portfolio to $727.2 billion, its level on Dec. 31, 2005, and Freddie Mac must restrict annual growth of its $712.1 billion portfolio to 2%. Easing the restrictions "would constitute a much more precise and effective...liquidity injection than would a rate cut by" the Fed, said T.J. Marta, a bond strategist at RBC Capital Markets. The Fed's FOMC meets Tuesday.

Sources: Reuters, Wall Street Journal, CNBC, Bloomberg, Financial Times
Commentary: The Short Case On Fannie Mae • Fannie, Freddie and WaMu Spearhead Subprime Borrower Help • Freddie Mac Misses on Trading, Credit Guarantee Losses
Stocks/ETFs to watch: FNM, FRE
Earnings call transcripts: Freddie Mac Q1 2007

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