The Office of Federal Housing Enterprise Oversight is lifting the portfolio caps on Fannie Mae and Freddie Mac, which will allow the two government-sponsored enterprises to provide more liquidity to the mortgage market and invest in jumbo mortgages. "OFHEO will remove the portfolio growth caps for both companies on March 1, 2008," OFHEO Director James Lockhart said. The unexpected action gives the GSEs more room to use their new authority to purchase jumbo mortgages and hold them in portfolio until they can securitize the higher-balance mortgages. Mr. Lockhart noted that Fannie and Freddie are filing their 2007 annual financial reports on time, which shows they have made "substantial progress" in fixing their accounting systems and internal controls as specified in separate consent orders. The consent orders also require the GSEs to maintain a 30% capital surplus. The OFHEO director signaled that he will begin discussions with Fannie and Freddie to gradually lower the capital surplus.

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