Bernanke Sees Fannie and Freddie Capped Out

August 29, 2007 No Comments »

In an August 27 letter to Senator Schumer, Bernanke said it wouldn’t be necessary to lift the assets caps currently placed on Fannie Mae and Freddie Mac.

Bernanke noted that a move to allow the two agencies to take in more loans wouldn’t prevent the current surge in foreclosures, and that the caps don’t need to be expanded to accommodate new borrowers.

The Fed chairman said the central bank “is closely monitoring developments in financial markets”, while the FOMC said in a statement that it “is prepared to act as needed to mitigate the adverse effects on the economy.”

He went on to say that the current caps “were imposed for safety and soundness reasons”, though the agencies “should be encouraged to provide products for subprime borrowers to the extent permitted.”

Currently, the caps allow the two agencies to hold $1.4 trillion in mortgages and mortgage bonds combined.

Fannie and Freddie already own or guarantee 40% of the $10.9 trillion U.S. residential mortgage market, and their push to capture more market share over the past month has fallen on deaf ears.

Two weeks ago the agencies made appeals that were met with disapproval by both the Bush Administration and The Office of Federal Housing Enterprise Oversight.

It’s likely that accounting misstatements made by the two government sponsored entities last year didn’t help their plea, though the Fed probably had no intention of haphazardly raising their current limits anyways.

The current conforming loan limits are $417,000 for a single-family residence, $533,850 for two-unit properties, $645,300 for three-unit properties, and $801,950 for four-unit properties.

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