Regulator rebuffs US mortgage giant's offer to ease subprime pain

Regulator rebuffs US mortgage giant's offer to ease subprime pain
By Jeremy Grant in Washington
Copyright The Financial Times Limited 2007
Published: August 11 2007 03:00 | Last updated: August 11 2007 03:00


An offer by Fannie Mae to ease conditions in the deteriorating US mortgage market was knocked back by its regulator on Friday, which said it would not lift a cap on the huge housing lender's portfolio.

The move comes after hectic lobbying by Fannie Mae to have the caps, imposed after recent accounting scandals, lifted to allow it to inject liquidity into the secondary mortgage market.

The issue is becoming a flashpoint between the White House and leading Democrats as both sides grapple with the fallout from the global credit turmoil.

The White House insists that legislation reforming Fannie and its sister lender Freddie Mac - giving a new regulator powers to limit their loan portfolios to guard against systemic risk - must first be passed before any such caps are lifted.

Leading Democrats say worsening conditions in the subprime market mean urgent action is needed to help home borrowers.

Yesterday, Daniel Mudd, Fannie chief executive, said he had asked the Office of Federal Housing Enterprise Oversight to raise its loan portfolio by up to 10 per cent "to help alleviate the ongoing credit crunch in the markets and bring an additional measure of stability".

However, Ofheo rejected the request. James Lockhart, its director, said that the problems in the mortgage market were "concentrated in product areas outside the authorised normal business of the enterprises".

The move will disappoint Christopher Dodd, Senate banking committee chairman, who said worsening mortgage market conditions meant the two lenders must be allowed to extend more credit. "The [Bush] administration can't continue to close their eyes to the scope of the problem and hope it goes away," he said.

But Robert Steel, under-secretary for domestic finance at the Treasury, appeared to welcome Ofheo's decision, saying the lenders "are limited in their ability to provide liquidity outside of the [prime] market".