Fannie Mae and Freddie Mac are important players in the mortgage market as they hold or guarantee 40 percent of all mortgages in the U.S. and about two-thirds of the conventional, conforming (non-jumbo) loans. This year their share of the mortgage market has grown rapidly. For this reason their safety and soundness is of paramount importance. The Enterprises have been very active in meeting their mission by providing significant liquidity and stability to the prime markets that they serve. They have entered into an increasingly large volume of securitization business in the conforming loan market—more than $500 billion dollars in the first half of the year—and that market is liquid and actively trading. We are encouraging them to increase this securitization activity.
The problems in the mortgage markets are concentrated in product areas outside the authorized normal business of the Enterprises. These markets are adjusting to tightened underwriting standards aimed at reducing losses and protecting borrowers. However, we are exploring with each Enterprise ways for them to enhance their support for affordable housing, both multi-family and singlefamily.
The portfolio caps were put in place last year because of their serious safety and soundness issues in response to Fannie Mae’s request to increase the portfolio caps, we issued a letter today to Fannie Mae. We also issued a response to Senator Schumer’s recent letter on this topic, which is attached. The letters indicate that we will keep under active consideration requests for an increase in the portfolio caps, but we are not authorizing any significant changes at this time. We will continue to reassess that position, especially in the affordable housing area.
The marketplace should have confidence that Enterprise securities are trading efficiently. The Enterprises will remain active market participants and OFHEO will continue to closely monitor both the markets and the Enterprises’ safety and soundness. In addition, we will continue to consider changes as needed to ensure that the current liquidity in Enterprise securities remains. We also recognize the important role played by the Federal Reserve in providing liquidity to the market, as evidenced by its actions today.
Corinne Russell (202) 649-3032 / Stefanie Johnson (202) 649-3030