Freddie Mac and Fannie Mae move to jump start mortgages in US

The Bush Administration allows Fannie Mae and Freddie Mac to take on more mortgages.

In an effort to help stabilise the mortgage industry in the United States, the Bush Administration has recently put into place the ability to reduce the amount of capital some companies must carry, and hold as a cushion against any losses. By lowering these requirements, the government is allowing the companies to purchase and back more mortgages.

The cut would require only 20%, rather than the normal 30% of the surplus capital to be held on hand. Officially, the Office of Federal Housing Enterprise Oversight made the ruling.

Freddie Mac and Fannie Mae are the largest source for money that is used to secure home mortgages. The two companies, though they are government sponsored enterprises, planned to raise significant new capital to help fund the need.

Fannie Mae Chief Executive Officer Daniel Mudd said the goal was to, "help restart the housing engine that powers our economy." Bloomberg News also reported that Freddie Mac CEO Richard Syron said, "This is what the GSE's were put in place for, to deal with situations like this and we will deliver."

What this move will do is still somewhat unknown. Yet it will put US $200 billion into the mortgage securities market. It will also allow the two enterprises to be able to buy or guarantee US $2 trillion worth of mortgages in 2008.

Recent reports have not been good, especially in the construction market where housing starts dropped by 0.6%, and the number of building permits issued also dropped significantly, which is a key signal about the future industries.