US regulators have announced a plan to allow mortgage firms Fannie Mae and Freddie Mac - which are sponsored by the US government - to pump an extra $200 billion into the troubled housing market.
The Office of Federal Housing Enterprise Oversight (OFHEO) said it would allow the two firms to invest a portion of their 30% capital surplus in mortgages and mortgage-backed securities.
The new regulations will lower the minimum capital requirement for the two agencies to 20% from 30% and add badly needed cash to the troubled sector.
This move is expected to help lenders provide more cash at a potentially lower rate of interest to the housing market. The US market has been suffering from a meltdown linked to troubles in the sub-prime sector, where loans are made to people with poor credit, and a related squeeze of lending.
The two mortgage giants are key players in US mortgage finance. Freddie Mac has a loan portfolio of $1.5 trillion and Fannie Mae's portfolio and loan guarantees amount to $2.9 trillion.
Both Fannie and Freddie are shareholder-owned firms created by Congress to provide funds for the housing market by buying mortgages and related securities and issuing mortgage-backed bonds.
The eased capital requirements came after OFHEO concluded that the two firms had corrected accounting problems that had led to probes in the past few years.
