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Freddie & Fannie lose their caps

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KAI RYSSDAL: Real estate came up quite a bit today in the back and forth that members of Congress like to have with the Fed Chairman. Mr. Bernanke said his best guess is that home prices will continue to fall until some time next year. Federal housing regulators really don’t want that to happen, so today they announced they’re lifting the caps on the mortgages Fannie Mae and Freddie Mac can buy. Which would be great — if the two mortgage giants had any money.

From Washington, Marketplace’s Nancy Marshall Genzer reports.

NANCY MARSHALL GENZER: Fannie and Freddie buy loans from banks and guarantee them. That puts more money back into the banking system for new loans, but after a series of multi-billion dollar accounting scandals, the federal government decided to limit how much money Fannie Mae and Freddie Mac could invest in loans they would buy and hold. Now regulators say Fannie and Freddie are cleaning up their books, so, as of this Saturday, there are no limits on their mortgage investment portfolios, but today Fannie announced it lost more than $3 billion in the fourth quarter of last year. Oops.

PATRICK NEWPORT: At one point people thought they were going to be part of the solution but they have problems of their own.

Patrick Newport is an economist with Global Insight. He says, since Fannie and Freddie are losing money. They’ll have to borrow cash to buy new loans, but . . .

NEWPORT: This is not a good environment for raising capital. Especially if you’re losing money.

But Fannie and Freddie are actually sitting on wads of cash. The government forced them to save it. Now Fannie and Freddie say they don’t need that cash cushion anymore. Jim Lockhart is their chief regulator. He says he might lower the cash reserve requirement.

JIM LOCKHART: Depending on market conditions we could lower it somewhat over the next three to six months.

Jim Carr says every little bit helps. He heads up the National Community Reinvestment Coalition.

JIM CARR: For consumers who have good credit, either who are just buying now or are in a position to refinance, this is welcome news.

But some economists say Fannie and Freddie are going to be very choosey about which new loans they buy.

In Washington, I’m Nancy Marshall Genzer for Marketplace.

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