Last week Fannie Mae announced its capital restoration plan and released its monthly volume summary, marked by continued retained portfolio declines. Analysts said that they expect this diminishing trend - with even larger drops - to continue until September, the month Fannie Mae has to reach its new capital target, which the Office of Federal Enterprise Oversight extended for three months to give the GSE more leeway.

Fannie announced two components to its capital restoration plan. The first is to manage its total balance sheet asset size by portfolio shrinkage, which will be done mainly through mortgage liquidations. The purpose of this is to limit overall minimum capital requirements. The second is to increase core capital via retained earnings, which includes cost-cutting efforts to augment capital.

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