Regulator Lifts Caps on Fannie, Freddie

Updated from 1:03 p.m. EST

A federal regulator on Wednesday lifted restrictions on Fannie Mae(FNM Quote) and Freddie Mac(FRM Quote) amid signs the government-sponsored housing giants had rectified accounting concerns that emerged earlier this decade.

The two stocks -- along with the wider market -- received an initial boost from the Office of Federal Housing Oversight, which said it would lift portfolio growth caps on retained mortgages portfolios. The rally came despite Fannie's report earlier in the day of huge losses due to a downturn in the U.S. housing market that threatens to plunge the economy into recession.

Fannie swung to a fourth-quarter loss of $3.56 billion on spiking credit-related costs, including a steep increase in money set aside for loan losses. It lost $3.80 a share, compared with a profit of $604 million, or 45 cents a share in the year-ago period. Analysts polled by Thomson Financial had expected a loss of $1.24 a share. ...