Fannie Mae and Freddie Mac to open up mortgage market?

Fannie Mae and Freddie Mac are government regulated and sanctioned companies that play a crucial role in making mortgage money available so that you and I can buy houses. They do this is two ways: One is simply by buying mortgages from the banks that issue them. Another is to insure mortgages that are sold to private investors.

Both companies have been limited in how much they can do either of these things lately for a couple of reasons. One is that they were being punished by the Office of Federal Housing Enterprise Oversight (OFHEO) for past accounting transgressions. Another is that they have been losing money lately, and it has become harder for them to raise capital for use in backing mortgages. They had to sell preferred stock to raise $13 billion just to cover their losses in the third quarter of 2007.

All of this may now change as OFHEO wants Fannie and Freddie to help the mortgage market recover. The details get complicated, but it appears that OFHEO will loosen its restrictions on both companies, and that will free up some money for them to use in the mortgage market. They are expected to use that money to insure mortgages sold in the private market.

Let’s hope it all works. It would be good for all of us if mortgages became easier to get.

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