FHFA: GSEs off the Hook on Capital Classifications

The regulator of Fannie Mae and Freddie Thursday morning suspended capital classifications for the two GSEs, which have been operating under government control since early September. Both mortgage giants continue to buy loans from their seller/servicers. Through the purchase of senior preferred stock, the Treasury Department owns most of both companies although their common shares continue to trade on the New York Stock Exchange. In a statement, the Federal Housing Finance Agency said it will continue to "closely monitor" their capital levels but noted that any minimum capital requirements "will not be binding during the conservatorship." Agency director James Lockhart said he is officially classifying the two mortgage giants as "undercapitalized" as of June 30, even though both reported second quarter results saying they met FHFA's statutory requirements for capital. FHFA's actions today were not unexpected.