Federal regulators on Wednesday loosened capital requirements limiting government-sponsored mortgage giants Fannie Mae ( FNM) and Freddie Mac's ( FRE) ability to take pressure off illiquid mortgage-backed securities markets. Fannie and Freddie, rapidly regaining the faith of regulators in the wake of accounting scandals that prompted heavy-handed regulation several years ago, ledged to raised money this year in exchange for the Office of Federal Housing Enterprise Oversight's reduction of the capital reserves they must maintain to 20% from 30%. The move, effective immediately, is expected to allow Fannie and Freddie to inject $200 billion in additional liquidity into the mortgage-backed securities market. It will allow the companies to buy or guarantee some $2 trillion in mortgages this year, OFHEO said. "Let me be clear -- both companies have prudent cushions above the OFHEO-directed capital requirements and have increased their reserves," OFHEO Director James Lockhart said in a statement. "We believe they can play an even more positive role in providing the stability and liquidity the markets need right now. OFHEO will remain vigilant in supervising the safe and sound operations of these companies, and will act quickly to address any deficiencies that may arise. Furthermore, we recognize the need to ensure that their capital levels are strong, protecting them from unforeseen risks as the market recovers." Treasury Secretary Henry Paulson praised the move, which he painted as evidence of Congress and the Bush administration's commitment to reforming the government-sponsored entities. "Fannie Mae and Freddie Mac are significant participants in the mortgage market and I am encouraged that Wednesday's announcement will make more financing available in this area," Paulson said in a statement. "Additional capital will enable the companies to help more homeowners and will strengthen the underlying fundamentals of the mortgage market." Fannie and Freddie both swung to multi-billion dollar losses in the fourth quarter, but are emerging from scandals over their accounting practices that forced them to make huge earnings restatements. OFHEO in February said the companies have satisfied requirements under a consent order and lifted growth caps on retained mortgages portfolios. The companies also settled a probe by New York Attorney General Andrew Cuomo into their mortgage appraisal practices by agreeing to a new set of standards and OFHEO soon after substantially raised the limits on loans they could buy from the previous $417,000.