No need for Fannie, Freddie subprime move: regulator

By Patrick Rucker and Al Yoon

WASHINGTON (Reuters) - The chief regulator for Fannie Mae FNM.N and Freddie Mac FRE.N said on Thursday that the mortgage investment companies do not need to grow their investment holdings to help the subprime market.

Currently, Fannie and Freddie have combined mortgage investments of roughly $1.4 trillion but would like to grow those profit-making holdings even more. Under restrictions from their regulator, the Office of Federal Housing Enterprise Oversight, those investments must be held near their current level.

While the companies and their allies have called for Fannie and Freddie to be permitted to grow their holdings and so help the roiling subprime mortgage market, OFHEO director James Lockhart said there is little evidence growing the investments would help the subprime market.

"The need to increase their portfolios to buy subprime is a whole red herring issue," Lockhart said on Thursday in an interview with Reuters.

Over the last year, neither Fannie nor Freddie have shown any real taste for buying subprime loans that were offered to borrowers despite their shaky credit, Lockhart said.

"They could have put certainly more into subprime. I would argue that the portfolio restraint has not hurt their ability to serve this market," he said.

A wave of subprime mortgage failures has turned investors away from home loans but Fannie and Freddie have not shown any interest in shoring up a large portion of those mortgages and are also constrained from doing so, Lockhart said.

"You don't want (Fannie and Freddie) to buy stuff that's going to default," Lockhart added.