US regulators free Fannie Mae to buy up mortgages

The news came as Ben Bernanke, chairman of the Federal Reserve, warned that the housing market will continue to act as a drag on the economy for several more months, and after data showing sales of new homes in January were down by more than a third on last year. The Office of Federal Housing Enterprise Oversight, Ofheo, said it was ending a cap on mortgage purchases that it imposed in 2004 after accounting irregularities at Fannie Mae and Freddie Mac.

The two companies operate under a government guarantee, buying up, repackaging and re-selling mortgages in order to stimulate lending activity. Politicians have complained since the start of the credit crisis that the caps were constraining the two companies just when they were most needed. Ofheo said it would also gradually reduce the amount of capital the two companies are required to set aside to cover their loans.

Its move came after Fannie Mae filed its annual results on time for the first time in several years, posting a $3.6bn ( 1.8bn) fourth-quarter loss because of rising mortgage arrears. Increased activity by Fannie Mae and Freddie Mac in the secondary mortgage market should help bring down interest rates for homebuyers and encourage lenders to make more loans available a prospect that encouraged bullish stock market investors to bet on an early end to the housing market slump.

Mr Bernanke had just delivered another downbeat assessment of the housing market on the first of two days of testimony before US lawmakers on Capitol Hill. He told the House of Representatives’ Financial Services Committee: “The housing market is expected to continue to weigh on economic activity in coming quarters.