The US body which regulates mortgage finance firms Fannie Mae and Freddie Mac is to lift an investment cap.
The move will free up billions of dollars for the two companies to invest in the US housing market, the Office of Federal Housing Enterprise Oversight said.
Fannie Mae earlier said it had swung into a loss of $2.1 billion in 2007 amid a deepening housing downturn and warned of 'another tough year.'
Fannie Mae said the net loss of $2.05 billion, or $2.63 a share, was mainly due to the weakness in the housing market and the disruption in the mortgage and credit markets in the second half of the year. For the full-year 2006, the government-chartered company earned $4.06 billion, or $3.65 a share.
The company said that the housing and credit problems had affected earnings in a number of ways, including an increase of $2.8 billion in its provision for credit losses, an increase of $5.1 billion in market-based valuation losses and a decrease of $2.2 billion in net interest income for the year.
It said its loss for the second half of the year totalled $5 billion, reflecting 'significant increases in serious delinquency rates and foreclosures, home price declines, widening credit spreads, shifts in interest rates and illiquidity in the capital markets.'
'We are working through the toughest housing and mortgage markets in a generation,' said Fannie Mae president and CEO Daniel Mudd. 'Our strategy for moving through another tough year is to protect and conserve our capital base, and control credit losses,' he said.
Revenue fell in the 12 months ended December 31 to $10.99 billion from $11.79 billion in 2006.
Fannie Mae added that the disruption in the housing, mortgage and credit markets is continuing in 2008. 'We expect housing market weakness to continue in 2008, leading to increased delinquencies, defaults and foreclosures on mortgage loans, and slower growth in US residential mortgage debt outstanding,' the company said.
Fannie Mae sharply hiked its 2008 forecasts for nationwide declines in home prices, to between 5-7%, from a prior 4-5%.
Created by Congress, Fannie Mae is a shareholder-owned company with a public mission to expand affordable housing and bring in global capital to serve the US housing market. It operates in America's secondary mortgage market to ensure that mortgage bankers and other lenders have enough funds to lend to home buyers at low rates.
