Statement by Daniel H. Mudd President and Chief Executive Officer on August 10
In an effort to help address deteriorating conditions in the secondary mortgage market and respond to calls by the lending industry for additional liquidity, we have asked our safety and soundness regulator, OFHEO, for the flexibility to increase the holdings of our mortgage-related portfolio. We believe that a moderate increase in the range of 10% is appropriate given both current market conditions and the importance of prudent market practice. We believe this action, in conjunction with actions taken by the Federal Reserve Board and others, would help to alleviate the ongoing credit crunch in the markets and bring an additional measure of stability.
While Fannie Mae cannot provide a panacea for the ongoing credit turmoil, additional portfolio purchases would allow the company to bring much-needed liquidity to housing market segments that need it most urgently.
In particular, balance-sheet flexibility will allow the company to fund additional multi-family loans, as well as single-family mortgages, where Fannie Mae is now one of a limited number of liquidity providers. These include mortgages that allow borrowers facing payment shock to refinance. Buyers for products like these have all but evaporated in recent weeks, and the cap on our portfolio prevents us from stepping up. As lenders and policymakers seek additional sources of liquidity, we are able to fund continuously and focus our investment on housing finance, where funding is currently needed most.
Our request is consistent with our charter obligation to provide liquidity and stability to the secondary mortgage market, particularly during periods of market dislocation. It is also consistent with our Consent Order Agreement with OFHEO, which allows for adjustments to the portfolio cap to address market dislocations.
We are confident that, working closely with our regulator, we can manage an increase in our portfolio holdings in a safe and sound manner. We expect to be current with our financial filings by February and, with nearly all Sarbanes-Oxley material weaknesses at the company now fixed, the remediation of the company's accounting and internal controls is largely complete and we are on solid footing to take necessary and prudent steps to address current conditions in the secondary mortgage market. -Fannie Mae
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