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Fannie Chief Sees No Need for Portfolio Expansion

Speaking today at the US Chamber of Commerce, Fannie Mae chief executive Daniel Mudd said there was no need for the government-sponsored entities to expand their portfolios at the moment.

“We do have the capability both through the size of the portfolio now, as well as through the modifications that OFHEO granted… to have some growth, so it’s not an issue today,” he said.

Mudd appeared to leave the door open for a possible easing of Fannie’s portfolio limits, but seemed to insist that it wait for new OFHEO legislation to be in place before any such expansion.

Late last year, OFHEO Director James Lockhart said he strongly preferred having new legislation in place before the portfolios limits were eased, and noted that demand for liquidity was not high enough to warrant an immediate increase.

On the other hand, the Fannie chief did express the need to raise the conforming loan limit, which currently sits at $417,000.

“Secretary Paulson, the mortgage bankers and others have called for raising the loan limit,” he said. “I agree, and Fannie Mae is ready to take action.”

“We would like to see legislation in this regard,” he added.

Mudd also called for a review of the Wall Street players and the risky investments that created the housing boom and its eventual bust.

“While the so-called private market has nearly collapsed from the subprime meltdown, it will rise again. So it’s worth taking a hard look at what happened to allow so much unsustainable lending there,” he said.

He also predicted that the housing market would continue to deteriorate through 2009, with a turnaround not likely until 2010, and urged lawmakers and lenders to pursue “the most generous means possible” to help borrowers facing mortgage resets.

In mid-December, Mudd told investors at Fannie’s annual meeting that he didn’t expect a housing market recovery until late 2009 “at the earliest.”

Shares of Fannie Mae were down $1.78, or 5.20%, to $32.45 in late afternoon trading on Wall Street.

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