Give back capital for big loans: Freddie Mac

By Patrick Rucker

NEW YORK (Reuters) - Freddie Mac (FRE.N: Quote, Profile, Research, Stock Buzz) wants its regulator to hand back over $1 billion in reserve capital so the mortgage finance company can buy larger home loans, the company's chief said on Thursday.

As part of a federal economic stimulus package, Freddie Mac and its cousin Fannie Mae (FNM.N: Quote, Profile, Research, Stock Buzz) will soon be able to buy home loans larger than the current $417,000 single-family limit but they will also need new capital reserves to protect against potential losses.

Freddie Mac Chief Executive Richard Syron told the Reuters Housing Summit in New York that he would like to see their regulator free up some capital so that the government-sponsored enterprise could buy bigger loans as envisioned by the stimulus legislation.

"I would have no objection to (capital relief) being tied to this program," he said.

Syron said the company has aired the idea with the Office of Federal Housing Enterprise Oversight and "they are very aware of our situation," but "to be fair about it, we have not gone into it in any great detail."

OFHEO officials were not immediately available for comment.

Syron said Freddie Mac would need roughly $1.2 billion of fresh capital in order to soak up around $60 billion of the larger loans.

Eighteen metro markets, mostly in California and around New York City, will have loans as high as $729,750 eligible for financing from Fannie Mae and Freddie Mac, according to research from Stanford Group in Washington.

The two government-backed companies will only be permitted to buy larger loans through the end of this year and such constraints mean the program will likely not exceed $60 billion, Syron said.

"It looks like, based on the early ideas of what areas are going to be in and out, that this is not going to be a huge, huge program," he said.

CAPITAL RESERVES

As of the end of September, the mortgage finance companies, which are chartered by Congress, held about $23 billion more capital than the minimum required by statute to protect against possible losses.

Most of that wealth was held under orders from the companies' regulator, which wanted Fannie Mae and Freddie Mac to create a bigger capital cushion after flawed accounting was discovered at both firms several years ago.

Next week, Freddie Mac will return to filing current and timely financial statements and that should allow the regulator to ease the capital constraints, Syron said.

"I would hope that as we progress and make continued progress that you would see, not in one fell swoop but you would see, some progress on eliminating some of the 30 percent surcharge on the capital," he said.  Continued...