WASHINGTON — In an effort targeted at pumping liquidity into the credit system, the federal regulator for Fannie Mae and Freddie Mac, the Office of Federal Housing Enterprise Oversight yesterday reduced the capital they are required to hold against losses. Now that reserve will become available to the government special entities to purchase more mortgages. (At year-end 2007 Fannie had $45 billion in capital and Freddie had $37 billion.)

President and CEO of Fannie Mae Daniel H. Mudd stated that "By reducing our 30% capital surplus to 20%, this plan will enable Fannie Mae to harness about $3 billion in additional capital to stand ready to purchase and guaranty mortgage assets. These additional activities will help us fulfill our Congressionally chartered mission to put private enterprise to work to promote stability, liquidity and affordability in the housing finance system in all cycles, good and bad."

Mudd added that Fannie would use its capital for purchases in segments of the mortgage market where liquidity is needed most, including affordable loans; loans that refinance borrowers out of subprime ARMs and into safer prime, fixed-rate products; jumbo-conforming loans; and multifamily mortgages that finance affordable rental housing. "More broadly, we will purchase and guaranty additional conventional, conforming mortgage-backed securities to help keep mortgage rates down and ensure stability in the center of the market," he said.