U.S. moves to free up funds for mortgages

In an effort to make home loans cheaper and easier to get, federal regulators announced today that they were relaxing capital requirements for government-sponsored mortgage giants Fannie Mae and Freddie Mac.

The move could add as much as $200 billion to the pool of money used to make mortgages. It could become available within weeks or months to home buyers and homeowners in the form of new loans.

Details of the financial arrangements were vague, but officials said the move to reduce the companies’ reserve requirement to 20% from 30% should filter through to consumers in coming weeks and months by freeing up capital for new mortgages and refinancings.

“We hope it will restart the housing engine that powers our economy,” Daniel Mudd, chief executive of Fannie Mae, said at a news conference. “Ultimately, we hope this means homeowners get lower-cost mortgages.”

The two government-sponsored mortgage holders hold about 40% of the country’s residential mortgages. They are ending a process of remediation designed to fix accounting problems that nearly sank them several years ago.

James Lockhart, director of the Office of Federal Housing Enterprise Oversight, which oversees Fannie and Freddie, noted that they were founded in the wake of the Great Depression to add stability to the mortgage market by buying and holding mortgages in good times and in bad. Their ability to do that has been limited in recent years by more stringent requirements imposed after accounting scandals at the companies.

“In some periods, they need to be countercyclical, and this is one of those periods,” Lockhart said. “These companies are safe and sound, and we are going to assure through our everyday oversight that they remain safe and sound.”

The regulators’ action reduces the additional capital the companies must hold as a buffer against losses under a provision imposed because of the accounting irregularities.

Richard Syron, chairman and CEO of Freddie Mac, noted that the price of mortgages to consumers remained far above the costs to mortgage lenders because of the fear of defaults gripping the market.

“This is what [Fannie and Freddie] were put in place for, to deal with situations like this,” he said. “And we will deliver.”

maura.reynolds@latimes.com