[NYTr] Government won't ease limits on loan giants

[All the News That Doesn't Fit]

sent by Riaz K. Tayob (activ-l)

[So how will the super rich get a bailout if not from fannie mae &
freddie mac?-rt]

AP via yahoo - Aug 10, 2007
http://news.yahoo.com/s/ap/20070810/ap_on_bi_ge/fannie_freddie;_ylt=Ahng...

Government won't ease limits on loan giants
	
By Marcy Gordon
Associated Press

WASHINGTON -- Mortgage finance giants Fannie Mae and Freddie Mac will 
not be allowed to take on more debt, the government said Friday,
denying requests to relax the companies' investment caps as a way to
pump cash into the struggling mortgage market.

The decision by the Office of Federal Housing Enterprise Oversight 
capped a week of speculation that buoyed the stock prices of the 
government-sponsored companies. Investors drove Fannie's share price 17 
percent above last Friday's close, and pushed up Freddie's stock by 11 
percent.

Meanwhile, with the U.S. home-loan markets in turmoil and credit drying 
up as a result, a mild panic has spread across the globe, knocking down 
key stock market indexes.

Democratic lawmakers and others made the case for federal regulators to 
ease the investment limits on Fannie and Freddie in order to provide 
much-needed liquidity in the market for mortgage-backed securities. The 
Bush administration, though, opposed the idea: President Bush insisted 
that a higher priority should be placed on tightening the oversight of 
Fannie and Freddie, which only a few years ago suffered 
multibillion-dollar accounting scandals.

OFHEO Director James B. Lockhart, the independent regulator charged
with the decision, said Friday the risk of allowing the two companies
to take on more debt at the moment 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," said Lockhart, adding
that he could reconsider the decision later on.

It was Lockhart's agency that installed caps last year on the
companies' mortgage investment holdings. 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.

Lockhart said Fannie and Freddie "will remain active market 
participants" in buying blocs of home mortgages from lenders and 
bundling them for sale to investors worldwide.

Fannie Mae's CEO Daniel Mudd said Friday that raising his company's 
investment portfolio cap by 10 percent "would help to alleviate the 
ongoing credit crunch in the markets and bring an additional measure of 
stability."

Earlier, the Federal Reserve announced that it will pump as much money 
as needed into the country's financial system, including $38 billion in 
temporary reserves injected Friday morning.

Shares of Fannie gained 53 cents to $66.46 on Friday, ending the week 
near the upper end of its 52-week trading range of $47.17-$69.94.
Shares of Freddie rose 28 cents to $61.95, trading in the middle of its
52-week range of $54.97-$71.92.

Arvind Sachdeva, senior portfolio manager at Victory Capital
Management, said he was skeptical all week about investors' apparent
belief that regulators would ease the investment limits on Fannie and
Freddie.

Sachdeva called it "almost incomprehensibly ironic" that Fannie and 
Freddie, criticized for years by many officials and lawmakers as posing 
risk to the financial system, were being viewed as the "solution" for 
the mortgage markets.

The mortgage markets in which Fannie and Freddie operate, marked by
less risk, have not been as severely hit by the credit squeeze racking
much of Wall Street.

Bush administration officials lauded OFHEO's decision.

"Currently, that market is active and functioning," Robert Steel, the 
Treasury undersecretary for domestic finance, said in a statement. "The 
correct approach is to continue to watch this market closely and 
determine what further role (they) may play."