Monday, September 24, 2007

GSEs may have their caps lifted early next year

OFHEO (the Office of Federal Housing Enterprise Oversight), the regulator of Fannie Mae and Freddie Mac, said that the investment caps may be removed altogether for the two GSEs if they establish timely and audited financial reporting. This news comes shortly after the caps were placed 2% higher for both companies, which translates into additional $20 billion or so in investments for each company.

Whether or not this move will be made depends on what and how the two mortgage giants report when they file their annual financial statements for 2007. “Current financials with no material weaknesses is a key test”, according to OFHEO director James Lockhart. He also said that, “there’s a reasonable chance” that the caps will be “changed significantly” if not lifted. The investment caps were initially placed after accounting scandals rocked both companies’ reputations and credibility.

After all the recent activity and the disappointing results of the Fed rate cut, I smell panic.

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