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Fannie Moving Out Of Construction Loans

By Annys Shin
Washington Post Staff Writer
Friday, July 14, 2006

Fannie Mae has suspended efforts to finance billions of dollars' worth of home construction loans as the District mortgage finance company gets its house in order following a $10.6 billion accounting scandal.

Fannie Mae has stopped its acquisition, development and construction loan program, including plans to finance $10 billion of home construction loans over 10 years, while the company addresses operational concerns raised by federal officials, Fannie Mae spokesman Charles V. Greener said yesterday in a written statement.

The program, initially approved by federal regulators 15 years ago as a pilot effort, upset some lenders, which feared Fannie Mae was trying to make inroads into the $350 billion market for home construction loans. Lender groups contend that market is already well served by banks.

Fannie Mae and its smaller rival Freddie Mac were created by Congress to keep mortgage money plentiful by buying home loans from banks and other lenders and pooling them into securities for sale to investors.

Since January, several lenders groups have lobbied the Department of Housing and Urban Development, which oversees the companies' compliance with their public charters, to review whether Fannie Mae strayed from its mission with its foray into construction lending. Recently, the Financial Services Roundtable has also made its case in letters and in person with James B. Lockhart III, director of the Office of Federal Housing Enterprise Oversight, Fannie Mae's and Freddie Mac's chief regulator. It has requested that his agency examine whether such loans are too risky for Fannie Mae to take on and that it stop the program.

"Construction loans are not in themselves bad loans, but they can be speculative," said John H. Dalton, president of the Financial Services Roundtable's Housing Policy Council, which represents big banks. "Fannie was wise to sit back and respond appropriately."

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