The Office of Federal Housing Enterprise and Oversight said Tuesday that both Fannie Mae and Freddie Mac were classified as "adequately capitalized" during the fourth quarter of 2007. Fannie Mae had a 9.3 percent surplus above an OFHEO-directed capital requirement, director James Lockhart said in a press statement, while Freddie Mac posted a 10.0 percent surplus. OFHEO requires each GSE to maintain a capital level 30 percent above the statutory minumum as part of a 2005 settlement over charges of accounting errors and earnings manipulation at both firms. Both GSE surplus percentages reflect significant increases over the depressed third quarter results, primarily due to the issuances of significant preferred stock during the fourth quarter to offset continuing market and credit-related losses. Freddie Mac's capital surplus had fallen below the OFHEO-directed requirement during the third quarter of last year, before the GSE boosted its capital base with a $6 billion preferred stock issuance that settled in December. "This event resulted in supervisory discussions re-emphasizing the importance of maintaining compliance," Lockhart said, "especially in light of the market volatility." OFHEO recently lifted portfolio growth caps at each GSE, allowing each company to grow both its loan and guaranteed MBS portfolios without restriction -- at least, beyond those imposed by the 30-percent OFHEO-directed capital requirement. But capital restrictions at Fannie and Freddie appear set to loosen as well. The Federal regulator has said it will consider lifting the consent order imposing the capital requirements on each GSE in the months ahead, although it expects such a decrease in capital requirements to be gradual. "The approach and timing of this decrease will also include consideration of the financial condition of the company, its overall risk profile, and current market conditions," said Lockhart. For more information, visit