Fannie Mae & Freddie Mac Tighten Sub Prime Standards

Fannie Mae and Freddie Mac have issued new policies tightening their standards for purchasing subprime mortgages, a change that will involve billions of dollars in loans.The changes announced by the two government-sponsored enterprises (GSEs) came in response to a directive from the Office of Federal Housing Enterprise Oversight (OFHEO) similar to the one issued to the guidelines issued to banks, thrifts and credit unions regarding subprime mortgages."These actions reinforce the necessity for safe and sound underwriting practices, which serve the interests of lenders and borrowers in promoting sustained homeownership," said OFHEO director, James B. Lockhart.The policies will take effect September 13.The companies are urging lenders to be cautious when making subprime loans and ask them make sure that their risk-management practices remain on par with the growth and shifting risk profile of the subprime mortgages they hold in their portfolios.In April, the two GSEs announced plans to buy tens of billions of dollars worth of subprime mortgages to help borrowers keep their homes.Fannie Mae and Freddie Mac are also offering new mortgages with longer fixed-rate terms to help subprime borrowers refinance out of high-interest adjustable-rate mortgages.According to the chairman of the Federal Deposit Insurance Corp. (FDIC), Sheila Bair, the new policies "will create market pressure for improved standards among non-banks and help to ensure that responsible lenders are not left at a competitive disadvantage." Posted on Monday, July 16, 2007 by staff