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KAI RYSSDAL: The housing market got a $200-billion shot in the arm today — federal regulators eased off what are called capital reserve requirements for the two big government-sponsored mortgage underwriters, Fannie Mae and Freddie Mac. That will let them use the extra money to buy up more debt. Our Washington bureau chief John Dimsdale explains how it’s all going to work.

John Dimsdale: The government has already lifted the caps on Fannie and Freddie’s mortgage holdings, and raised the size of the mortgages they can underwrite. Add today’s relaxed capital requirements and the twins can inject an additional $2 trillion into the mortgage market this year.

Freddie’s executive vice president Patricia Cook says some of the new money will be used to refinance troubled subprime loans.

Patricia Cook: In those mortgages we have already guaranteed, we are in position now to be even more aggressive about modifying those loans. And hopefully, by doing that, we will influence others to follow suit.

Since the government backs up Fannie and Freddie’s mortgage underwriting, some worry about taking on riskier loans with an even thinner cash cushion. Tom LaMalfa is an industry analyst with Wholesale Access Research and Consulting:

Tom LaMalfa: The agencies are going to be assuming additional risk at same time their capital base has been decreased. And it does make Fannie and Freddie a bit more vulnerable, because they are highly leveraged agencies.

But Freddie’s Patricia Cook says allowing struggling homeowners to default on their loans hurts lenders even more than working out easier payment terms.

Cook: So you could look at loan modifications for us as a risk- or loss-minimizing activity.

As for new mortgages, Cook says with all the attention to lending risks, the credit quality of new loans are substantially better than they were a year ago.

In Washington, I’m John Dimsdale for Marketplace.