Beat And Battered

House and Senate negotiators have reached an agreement on loan limits, and it appears that the maximum amount for the Government Sponsored Enterprise (GSE)Fannie Mae, Freddie Mac, and Federal Housing Administration FHA loans will be $625,000.

Negotiations on a massive housing bill are getting serious, with the House of Representatives scheduled to vote on the legislation tomorrow.

In markets where housing prices exceed the $417,000 conforming loan limit, the maximum loan amount of Fannie Mae and Freddie Mac loans would be determined by multiplying the median home price by 115%, up to a maximum of $625,000, sources say.

The same holds true for FHA loans, except that the multiplier kicks in at $271,050, or 65% of the conforming loan limit. If the median home price is $300,000, the maximum FHA loan amount in that area would be $345,000 ($300,000 x 115%).

House Financial Services Committee Chairman Barney Fran, D-Mass., told The Washington Post that the House has agreed to accept Senate provisions that ban seller funded downpayment assistance on FHA loans and impose a 12-month moratorium on the charging of risk-based premiums by the FHA.

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Financial stocks, especially those tied to the mortgage industry, helped fuel a 237-point drop in the Dow Jones industrial average on Wednesday.

Freddie Mac’s shares plunged by $3.20, or 24%, on the day, closing at a new 52-week low of $10.26.

Fannie Mae’s shares fell $2.31, or 13%, to close at $15.31.

Bank of America, which recently closed on its acquisition of Countrywide Financial, saw its shares fall $1.48, or 6%, to close at $22.06.

Radian Guaranty’s shares fell by 18 cents, or 11%, to close at $1.53.

Analysts attributed Wednesday’s broad market decline to concern about a slowing economy, more bad debt at banks, and higher oil and commodity prices.

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• James Lockhart Does Not Buy Into Fannie and Freddie Capital Concerns But Stockholders Do

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“OFHEO has been monitoring and continues to monitor closely Fannie Mae , Freddie Mac and the mortgage and financial markets. As one would expect, we are carefully watching the Enterprises’ credit and capital positions.

As I have said before, they are adequately capitalized, holding capital well in excess of the OFHEO-directed requirement, which exceeds the statutory minimums. They have large liquidity portfolios, access to the debt market and over $1.5 trillion in unpledged assets.

At the time of our March 2008 capital agreement with the Enterprises I said: `OFHEO will remain vigilant in supervising the safe and sound operations of these companies, and will act quickly to address any deficiencies that may arise. Furthermore, we recognize the need to ensure that their capital levels are strong, protecting them from unforeseen risks as the market recovers.’

Including the $7.4 billion Fannie Mae raised in May in accordance with our March agreement, the Enterprises have raised over $20 billion in capital. They are using it to continue to grow and to play a critical role in the mortgage markets, which we expect them to continue to do. To support their mission, Freddie Mac is committed to raising an additional $5.5 billion, which they will do given appropriate market conditions. At a very difficult time in the market, the Enterprises have the flexibility and sound operations needed to support their mission.”

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• Temporary 2008 Conforming Loan Limits Released For High Cost Areas

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Proposed changes in accounting rules that could force Fannie Mae and Freddie Mac to move certain Mortgage Backed Securities (MBS) onto their balance sheets should not have a major impact on their capital requirements, according to the Government Sponsored Enterprise (GSE) regulator.

The Office of Federal Housing Enterprise Oversight is working with the Financial Accounting Standards Board on changes to FAS 140, OFHEO Director James Lockhart indicated.

The two government-sponsored enterprises already have a 45-basis-point capital charge on their guaranteed MBS, he noted. Investor concerns that an accounting change would trigger a dramatic rise in their capital requirements "makes no sense," Mr. Lockhart said.

Wall Street stock investors dumped Fannie and Freddie shares on Monday on fears that the GSE might have to raise $75 billion in new capital due to accounting changes.

In an interview on CNBC-TV, Mr. Lockhart stressed that Fannie and Freddie are adequately capitalized and have raised $20 billion in new capital over the past seven months.

Fannie Mae and Freddie Mac See Sell-Off

Shares of Fannie Mae and Freddie Mac fell sharply Monday after an analyst said they may have to raise more capital than anticipated.

Freddie Mac’s share price fell $2.59, or 18%, to close at $11.91. Fannie Mae’s shares fell $3.04, or 16%, to close at $15.74.

Analyst Bruce Harting of Lehman Brothers advised clients that a possible change in accounting rules would require the two government sponsored enterprises to shift off-balance sheet securities to their balance sheets, a move that would require them to raise additional capital to meet regulatory standards.

Separately, Reuters reported that the cost of insuring the debt of Fannie Mae and Freddie Mac rose on Monday.

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