Fannie and Freddie free to set size of capital raise

By Al Yoon

NEW YORK (Reuters) - Fannie Mae (FNM.N: Quote, Profile, Research) and Freddie Mac (FRE.N: Quote, Profile, Research) regulator on Friday said it is up to the housing finance companies to determine how much money they must raise to buoy the U.S. housing market.

The regulator, the Office of Federal Housing Enterprise Oversight, said it was clarifying an earlier statement made by its director indicating the combined amount could be as high as $20 billion, more than twice what many analysts had expected.

Ofheo this month eased constraints on the government-chartered companies in an agreement that prods them to raise "significant" amounts of capital. The move allows the GSEs to boost their support of the housing market through the purchase of hundreds of billions of dollars in loans or mortgage securities.

Freddie Mac distanced itself from such a large figure on Thursday when its Chief Financial Officer said it was not even considering raising $10 billion of new capital. A statement from Chief Executive Officer Richard Syron on Friday indicated the company understood any capital raising would be less than $3 billion, based on terms of the joint agreement.

Shares of Fannie Mae and Freddie Mac fell more than 6 percent on Friday on concern that a larger-than-expected move to raise capital would dilute shareholders' interests. Analysts had expected the companies would each need to raise between $3 billion and $5 billion to increase asset purchases while maintaining a cushion against losses.

Capital levels at the GSEs have come under increased scrutiny in recent months. While the GSEs have enough capital now, the companies are under stress as they walk a line between curbing record losses and increasing their role in stabilizing the ailing U.S. housing market.

Ofheo Director James Lockhart made an impromptu statement in what the agency said clarified comments to Bloomberg News on Thursday indicating the companies could raise $20 billion.

"I expect the companies to determine the amount within a broad range based upon mortgage market needs, the expected return to their shareholders and the advice they receive from investment bankers," Lockhart said.