Fannie, Freddie Told to Tighten Lending

By James Tyson
Bloomberg News
Saturday, July 14, 2007

The regulator for Fannie Mae and Freddie Mac said yesterday it is requiring the two largest U.S. mortgage finance companies to adopt guidelines aimed at reducing imprudent lending through interest-only and other non-traditional mortgages.

The rules by the Office of Federal Housing Enterprise Oversight require the government-chartered companies to buy home loans from originators that underwrite mortgages at the fully indexed and amortizing rate. The guidance also discourages Fannie Mae and Freddie Mac from buying mortgages from lenders that require little documentation of a borrower's income and assets.

The government-chartered companies said they informed lenders yesterday that they are following the rules, which track guidelines announced by the Federal Reserve and other banking regulators in October.

"These actions reinforce the necessity for safe and sound underwriting practices, which serve the interests of lenders and borrowers in promoting sustained homeownership," OFHEO Director James B. Lockhart III said in a statement.

Congress created Fannie Mae of the District and Freddie Mac of McLean to expand homeownership by increasing mortgage financing. The companies own or guarantee about 40 percent of the $10.9 trillion residential U.S. mortgage market.

The federal guidelines for Fannie Mae and Freddie Mac seek "to ensure consistent application of sound and prudent credit underwriting standards, risk management practices and protections for the consumer," OFHEO said in a statement.

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