$200b More Purchasing Power For Fannie Mae, Freddie Mac

The Office of Federal Housing Enterprise Oversight (OFHEO) reduced capital requirements for FNMA and FHLMC from 30 per cent to 20 per cent today, making it possible for the two government-backed mortgage companies to buy up to $200 billion more loans in 2008. This means they could purchase up to $1 trillion in loans for 2008. These organizations only buy conforming loans, which traditionally have been loans up to $417,000, but as of April 1, they will also buy 15yr and 30yr fixed loans up to $729,750 and as of June 1, they will buy adjustable rate mortgages up to $729,750. This is the new cap for conforming loans. The formula for super-conforming is 125% of median home price for a given area to a cap of $729,750.

FNMA and FHLMC will also be able to buy loans dating back to July 1, 2007 that lenders still have on their books. This new reduced capital requirement is good news for mortgage market liquidity because it means lenders are more confident that they can sell loans. It remains to be seen whether this additional Agency buying power will help bring down rates on super-conforming, which are still very close to Jumbo rates.