American Fannie Mae and Freddie Mac's regulator is proposing that the mortgage giants be required to hold at least US$240 billion (HK$1.87 trillion) in capital to guard against losses, a step that could have an impact on mortgage interest rates and on the Trump administration's efforts to free the companies from US control.
The proposal is the latest sign of progress toward Federal Housing Finance Agency Director Mark Calabria's goal of freeing Fannie and Freddie from nearly 12 years in federal conservatorship.
Private shareholders, including hedge funds and other investment firms, could make billions of dollars when the companies are released, and the public stock offerings would likely be among the largest ever.
"We must chart a course for the Enterprises toward a sound capital footing so they can help all Americans in times of stress," Calabria said in a statement. "More capital means a stronger foundation on which to weather crises. The time to act is now."
Calabria said at an online Mortgage Bankers Association event on Tuesday that the pandemic had delayed the FHFA's timeline to capitalize Fannie and Freddie by three to four months, but it could take even longer if the economy worsens. The senior FHFA official said the agency still expects Fannie and Freddie to begin raising capital from the public markets sometime next year. He said it could take years for them to reach the capital goal.
FHFA officials have said it could take years and more than one public offering for Fannie and Freddie to reach the capital levels they'd need to function outside of conservatorship. The capital levels and investors' return expectations would affect the fees Fannie and Freddie charge to back mortgages and, by extension, the rates charged to borrowers.
Meanwhile, delinquencies on US home loans surged by 1.6 million in April, the biggest one-month gain ever, as soaring job losses fueled a 90 percent jump in missed payments and government programs offered penalty-free delays.
Mortgages at least 30 days in arrears almost doubled to 6.45 percent, the highest rate since January 2015, according to data compiled by Black Knight.
About 3.4 million loans were more than 30 days late and an additional 211,000 properties were in foreclosure or on track for repossession by lenders.