Rose-tinted Bloombergs

18 March 2008 By Antony Currie Follow @AntonyMCurrie

That s the only way to read the positive reaction to regulator Ofheo s relaxing Fannie and Freddie s capital constraints. Ofheo seems to be hoping that promises from the agencies not to gear up will encourage investors to pony up more capital. That seems a tad optimistic.

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Fannie Mae and Freddie Mac's regulator has announced it is reducing the capital surplus the two housing agencies are required to maintain above their minimum capital to 20% from 30%. The Office of Federal Housing Enterprise Oversight has agreed to do so in return for pledges from Fannie and Freddie to raise significant new capital and to keep ratios in excess of the minimum.

Ofheo expects this should allow the two agencies to provide up to $200bn of immediate liquidity to the mortgagebacked securities market.

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