Fannie Mae asks to buy more mortgages
Fannie Mae gave hope to gloomy markets on Aug. 6 by asking regulators for permission to purchase more mortgages from struggling lenders — a move that would help to ease the worsening Wall Street credit crunch.
The possibility of a rescue from Washington came as American Home Mortgage Investment Corp. filed for bankruptcy in Delaware, becoming the second-largest mortgage lender to go under this year.
In a sign of the increasing severity of the credit contagion, worries about the solvency of Countrywide Financial Corp., the biggest U.S. mortgage lender, prompted it to disclose in a filing that it has access to $186.5 billion to cushion itself against a credit crunch that has pushed at least a dozen competitors into bankruptcy.
Fannie Mae’s move raised the possibility that the giant mortgage company will step in the void left by slumping demand for mortgage securities on Wall Street. Fannie Mae officials approached the Office of Federal Housing Enterprise Oversight (OFHEO) in the past few days, seeking to have restrictions lifted so it can hold more home-loan assets in its portfolio, said an official on the condition of anonymity because the move was confidential.
Fannie Mae and smaller rival Freddie Mac could pick up the slack left by Wells Fargo & Co., Wachovia Corp. and other lenders who recently have announced major cutbacks in lending to borrowers with lower subprime and “alternativeA” credit ratings.
IndyMac Chief Executive Officer Michael Perry said two weeks ago he asked the Washington-based companies to help.
“There is significant pressure coming from lenders to the regulators asking for steps like that,” said Howard Glaser, a mortgage consultant. “Lenders themselves are requesting OFHEO allow Fannie Mae and Freddie Mac to step in.”
Under the housing agency’s guidelines, Fannie Mae must limit its portfolio to $727.2 billion, its level as of Dec. 31, 2005. Freddie Mac must restrict annual growth of its $712.1 billion portfolio to 2 percent.
“We are anxious to have a discussion with our regulator on how we can bring liquidity to the market at this time,” Freddie Mac spokeswoman Sharon McHale said. “We have not begun to have those discussions.”
Meanwhile, American Home Mortgage sought federal court protection from creditors, saying it had assets of more than $20.6 billion and debt of more than $19.3 billion owed to more than 100,000 creditors. The filing comes after the company announced on Aug. 2 that it would halt operations and slash its staff.
This article is based in part on wire service reports.