Dodd Wants GSEs to Buy Subprime Paper

Senate Banking Committee chairman Chris Dodd, D-Conn., wants Fannie Mae and Freddie Mac to use a 30% capital surplus to buy subprime loans and restructure the loans to prevent foreclosures, but the GSE regulator indicated he is reluctant to lower the capital requirement. Office of Federal Housing Enterprise Oversight director James Lockhart said the two government sponsored enterprises have done a good job of purchasing refinanced subprime loans and they have enough capital to securitize those loans. The director also said the OFHEO is in discussions with the GSEs to free up the capital surplus that was imposed several years ago because of operational problems associated with their accounting and internal controls. But he told Sen. Dodd that Fannie and Freddie are facing new stresses due to raising delinquencies and loan losses. "We need to be careful about taking it off," Mr. Lockhart said. "I would be more comfortable," he added, if OHFEO had more authority to set minimum and risk-based capital requirements.