OFHEO Says Fannie and Freddie OK as Conservatorship Rumors Abound

July 10, 2008 No Comments »

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Office of Federal Housing Enterprise Oversight director James B. Lockhart issued a statement today, vowing that mortgage financiers Fannie Mae and Freddie Mac were safe and sound.

“OFHEO has been monitoring and continues to monitor closely Fannie Mae, Freddie Mac and the mortgage and financial markets,” Lockhart said. “As one would expect, we are carefully watching the Enterprises’ credit and capital positions.”

He reiterated that the pair was still classified as “adequately capitalized”, the highest rung on the OFHEO’s adequacy ladder, with “undercapitalized”, “significantly undercapitalized” and “critically undercapitalized” the other possible ratings.

“As I have said before, they are adequately capitalized, holding capital well in excess of the OFHEO-directed requirement, which exceeds the statutory minimums. They have large liquidity portfolios, access to the debt market and over $1.5 trillion in unpledged assets.”

Lockhart also made mention of Fannie Mae’s recent $7.4 billion capital raise, and noted that Freddie Mac is still committed to raising another $5.5 billion, though that seems to have been delayed until after the second quarter.

“At a very difficult time in the market, the Enterprises have the flexibility and sound operations needed to support their mission,” Lockhart concluded.

Despite his optimistic words, both Fannie and Freddie saw their shares plummet for a second straight trading session.

Fannie Mae fell $2.11, or 13.78%, to $13.20, while Freddie Mac slipped $2.26, or 22.03%, to an even $8.00.

Meanwhile, the Bush Administration is reportedly considering a plan that would place one or both GSES under government conservatorship if their problems deteriorate.

I guess adequately capitalized is open to interpretation.

(photo: terra2055)

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