Fannie Mae gave hope to gloomy markets yesterday by asking regulators for permission to purchase more mortgages from struggling lenders — a move that would help to ease the worsening Wall Street credit crunch.
The possibility of a rescue from Washington came as American Home Mortgage Investment Corp. filed for bankruptcy in Delaware, becoming the second-largest mortgage lender to go under this year.
Fannie Mae’s request helped spur a 287-point jump in the Dow Jones Industrial Average, retracing a 281-point loss in the blue-chip index Friday on news of widening credit woes. Stocks also rallied on hopes that the Federal Reserve will signal its concern about the deteriorating credit situation after a committee meeting scheduled for today.
In a sign of the increasing severity of the credit contagion, worries about the solvency of Countrywide Financial Corp., the biggest U.S. mortgage lender, prompted it to disclose in a filing yesterday that it has access to $186.5 billion to cushion itself against a credit crunch that has pushed at least a dozen competitors into bankruptcy.
Fannie Mae’s move raised the possibility that the giant mortgage company will step in the void left by slumping demand for mortgage securities on Wall Street. Fannie Mae officials approached the Office of Federal Housing Enterprise Oversight (OFHEO) in the past few days, seeking to have restrictions lifted so it can hold more home-loan assets in its portfolio, said an official on the condition of anonymity because the move was confidential.
Fannie Mae and smaller rival Freddie Mac could pick up the slack left by Wells Fargo & Co., Wachovia Corp. and other lenders who recently have announced major cutbacks in lending to borrowers with lower subprime and “alternative-A” credit ratings.
IndyMac Chief Executive Officer Michael Perry said last week he asked the Washington-based companies to help.
“There is significant pressure coming from lenders to the regulators asking for steps like that,” said Howard Glaser, a mortgage consultant. “Lenders themselves are requesting OFHEO allow Fannie Mae and Freddie Mac to step in.”
Under the housing agency’s guidelines, Fannie Mae must limit its portfolio to $727.2 billion, its level as of Dec. 31, 2005. Freddie Mac must restrict annual growth of its $712.1 billion portfolio to 2 percent.
“We are anxious to have a discussion with our regulator on how we can bring liquidity to the market at this time,” Freddie Mac spokeswoman Sharon McHale said. “We have not begun to have those discussions.”
Brian Faith, a Fannie Mae spokesman, declined to comment, as did Corinne Russell, spokesman for the housing agency.
Relaxing the cap “would constitute a much more precise and effective ease, or liquidity injection, than would a rate cut by the Fed,” said T.J. Marta, a bond strategist at RBC Capital Markets.
Lifting the caps “would carry more psychological than economic impact, but that’s exactly what the market could use right now,” said Jim Vogel, a bond researcher at FTN FinancialTennessee.
Meanwhile, American Home Mortgage sought federal court protection from creditors, saying it had assets of more than $20.6 billion and debt of more than $19.3 billion owed to more than 100,000 creditors. The filing comes after the company announced Thursday it would halt operations and slash its staff.
The Melville, N.Y., company specialized in mortgages for people who fall just short of top credit scores. It originated almost $60 billion in mortgages last year.