Al Yoon at Reuters yesterday interviewed Office of Federal Housing Enterprise Oversight director James Lockhart, and peered into what the GSE regulator is thinking next after reducing a capital surcharge for both Fannie Mae (FNM) and Freddie Mac (FRE), and also relaxing portfolio growth constraints for both housing enterprises. From the story:

“The key thing will be their capital raise, and how much it is and when it is,” James Lockhart, director of the Office of Federal Housing Enterprise Oversight, told Reuters. “That, to me, will decide what the next step should be” on lowering the capital surplus again, he said … The GSEs have not decided on amounts of capital they will raise, but it should be an amount that makes an impact on the housing market, Lockhart said. Freddie Mac will not raise capital until after its quarterly earnings report in mid-May, according to Lehman Brothers analyst Bruce Harting, citing in a report notes from a meeting with the McLean, Virginia-based company last week … “Certainly we’re encouraging them not to do the bare minimum, but to try to have enough capital so they can really fulfill their mission,” he said.

Each GSE is expected to raise $3 to $4 million, likely via a preferred shares offer, sources have suggested to Housing Wire. The last such offer from both GSEs, late last year, was heavily oversubscribed. Despite discussions of further reductions in capital requirements, at least some are worried that even the additional capital won’t be enough. Both Fannie and Freddie were the subject of a critical analysis yesterday by Goldman Sachs analysts that pegged Fannie Mae at a target price of $16, and Freddie Mac at a target price of $15 per share. The analyst group, led by James Fotheringham, said that credit costs remain a primary concern, even with the additional capital in the works. “Both Fannie and Freddie have exposure to subprime, Alt-A, negative amortization, interest-only and investor property mortgages,” the Goldman analysts wrote. “[W]e believe that losses will be greater this cycle than that experienced in the early-90’s cycle, when GSE risk exposure was even more oriented to prime-fixed mortgage products. The research note also argued that the GSEs’ collective exposure to so-called “bubble” states has yet to materialize fully, noting that while 25 percent of the collective book of business sits in California, Florida, Arizona and Nevada, such states only accounted for 15 percent of credit costs absorbed during 2007. Some sources that spoke with Housing Wire contested that notion, saying both GSEs had hedged against key exposure. “What’s missing, I think, is a look at how existing hedges at Fannie and Freddie will limit quite a bit of the credit costs that have Goldman so worried,” said one source, a MBS analyst that asked not to be identified. Disclosure: The author owned no positions in FNM or FRE when this story was originally published. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.