The stock market got a slight lift today amid all the bad housing news when the Office of Federal Housing Enterprise Oversight (OFHEO) opted to remove the portfolio loan limits for Fannie Mae and Freddie Mac.
The move, which goes into effect March 1, was at first viewed as good news for housing in that the hope was that it would free up Fannie and Freddie's ability to provide financing for home buyers. The caps were imposed two years ago after accounting irregularities were discovered at the two large GSEs.
In a prepared statement, OFHEO Director James Lockhart, said the agency based its decision in recognition of the timely release of Fannie and Freddie's 2007 audited financial statements.
Even with this bit of good news, the Dow twisted and turned into positive and negative territory most of the afternoon, finishing up with a flat 9.36 gain by day's end.
What happened by close of business today was that reality seemed to have set in. The expectation of better times ahead for housing, including further rate cuts from the Fed, couldn't offset the string of bad news.
Earlier today, the government's new home sales numbers reached their lowest level since February 1995. And, yesterday, home prices recorded their worst one-year decline in the 20-year history of the S&P Case-Shiller Home Price Indices.
Patrick Newport, U.S. Economist for Global Insight, said when you tack on the news that Fannie Mae reported a $3.6 billion fourth quarter loss and consider that Freddie Mac (which reports tomorrow) is not in much better shape, not much will change in the short run.
"This may well be good news, but Fannie Mae is not in shape to take on new business," said Newport. "Right now, they are in no position to expand their loan portfolio," he said, adding that with the ongoing credit crunch, it will be very difficult for Fannie Mae and Freddie Mac to raise capital.
"We don't see this creating much change to the short-term housing outlook," Newport concluded.