The business stories that matter, by Fortune's Colin Barr
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May 6, 2008, 6:51 am

Bernanke wants Fannie to raise capital

Fed chief Ben Bernanke sees a big role for Fannie Mae (FNM) and Freddie Mac (FRE) in resolving the U.S. housing crisis. Speaking at a Columbia Business School dinner Monday night, Bernanke said the government-sponsored mortgage investors should “move quickly to raise significant new capital” to aid the housing market, Bloomberg reports. Bernanke also spoke in support of proposals that would have lenders forgiving parts of struggling homeowners’ loans and make Federal Housing Administration refinancings more widely available.

Calls for new capital at the big mortgage companies are nothing new. The director of Fannie and Freddie’s main regulator, James Lockhart of the Office of Federal Housing Enterprise Oversight, said in March that the companies may raise as much as $20 billion in new capital as part of a deal freeing them to expand their purchases of mortgage securities. The firms raised some $15 billion at the end of 2007 via preferred stock sales to replenish their coffers after two quarters of hefty losses tied to souring mortgages. Fannie Mae’s first-quarter earnings, due out Tuesday morning and expected to show a third straight quarterly loss, may offer a clue as to how much money the firms will need to raise.

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Colin Barr covers business and finance for Fortune.com. Previously he was an editor at TheStreet.com and author of the weekly Five Dumbest Things on Wall Street column, and an editor at Dow Jones Newswires.
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