Federal mortgage companies to step up

WASHINGTON -- Fannie Mae and Freddie Mac, the biggest sources of U.S. home finance, can buy $20 billion more in subprime mortgages under rules unveiled Wednesday to help revive a market crippled by tighter lending standards.

The Office of Federal Housing Enterprise Oversight, the companies' regulator, agreed to relax restrictions on the mortgage finance companies' investment holdings, although it did not eliminate existing caps on those loan portfolios.

The moves are meant to help Fannie Mae and Freddie Mac "provide greater assistance to subprime borrowers and others who may have trouble refinancing their existing mortgages," OFHEO Director James Lockhart said in a statement.

However, he said he will not allow "any major increases in the (investment) portfolio levels."

The regulator agreed to let both companies buy more subprime loans and eased Fannie Mae's investment limit to the level imposed on Freddie Mac. OFHEO also agreed to eliminate some stringent bookkeeping measures that further constrained the investments, which are valued at a combined $1.4 trillion.

Both companies welcomed the news but said they needed more freedom to buy home loans to help stabilize the roiling market. Fannie has called for the investment cap to be lifted by at least 10 percent.

Rep. Melissa Bean, a Barrington Democrat, and Rep. Randy Neugebauer, a Texas Republican, plan to propose legislation to temporarily raise the investment caps.

"Faster and more decisive action is needed to stem the tide of foreclosures facing Americans today," Bean said in a statement Wednesday.

Sen. Charles Schumer, a New York Democrat and member of the Senate banking panel, has introduced a bill that would let Fannie and Freddie increase their investment holdings by 10 percent.

Federal Reserve Chairman Ben Bernanke recently wrote, however, any increase in holdings by the companies should be temporary.

The Fed chief also suggested the companies' investment holdings should be trimmed and tied to their goal of increasing access to affordable housing.