Fannie Mae to Loosen Policies to Combat Housing Slump

By Jody Shenn
May 6 (Bloomberg) -- Fannie Mae, the largest U.S. mortgage-
finance company, plans to change its policies and pricing to help
the country emerge from a housing slump.
The government-chartered company will handle refinancings of
non-delinquent mortgages for as much as 120 percent of property
values when it owns the existing loans, the Washington-based
company said today in a statement. Fannie Mae also said it will
buy ``jumbo'' mortgages, or those bigger than $417,000, for the
same prices as smaller loans.
The changes come in response to rising costs for borrowers,
making it harder for some consumers to refinance loans or buy
homes. Fannie Mae and smaller rival Freddie Mac have been
boosting fees to increase revenue and tightening guidelines to
limit losses from foreclosures, amid mounting credit costs.
``On the jumbo side, any improved liquidity is going to be a
big help,'' said Dan Cutaia, the president of Fairway Independent
Mortgage Corp., a Madison, Wisconsin-based lender. The difference
between the rates on the loans and smaller ones are ``historic
highs,'' he said today at an industry conference in Boston.
Fannie Mae today reported a first-quarter loss of $2.19
billion amid rising homeowner defaults, and said that it will cut
its dividend and raise $6 billion in capital. McLean, Virginia-
based Freddie Mac will report results on May 14.

Mortgage Defaults

Fannie Mae and Freddie Mac may be going too far with new
fees for loans to borrowers with lower credit scores or down
payments, David Kittle, the chairman-elect of the Mortgage
Bankers Association, said yesterday at the conference.
``We are penalizing good borrowers going forward for
mistakes in the past,'' he said.
Kittle, the chief executive officer of Principle Wholesale
Lending Inc., said changes at the companies have been driving
more borrowers into government-insured mortgages. Lending insured
by the Federal Housing Administration or Department of Veterans
Affairs has climbed to about 40 percent of the volume at his
Louisville, Kentucky-based lender, from less than 3 percent in
the third quarter of 2007.
Fannie Mae plans ``significant'' changes to the computer
model lenders use to determine whether it will buy or guarantee
specific loans to reflect data on the causes of surging U.S.
mortgage defaults, Thomas Lund, the executive vice president for
the company's single-family mortgage business, said yesterday.
``We need to align the price with the risk we take in the
marketplace, and we need to do that to protect our capital, so
that we're here,'' he said at the conference. He wouldn't detail
the automated-underwriting changes.

Jumbo Mortgages

Barney Frank, the chairman of the U.S. House Financial
Services Committee, said yesterday he is disappointed that the
companies haven't provided more financing for jumbo mortgages
under temporary authority granted by Congress this year.
The Democrat plans to hold a hearing May 21 with the
companies and the Securities Industry and Financial Markets
Association, which manages mortgage-bond rules. He said they must
``explain why we have not gotten more bang for the buck'' after
Congress allowed Fannie Mae and Freddie Mac to buy or guarantee
mortgages as large as $729,500 in some high-cost areas.
The yield that Fannie Mae was requiring on the mortgages was
0.39 percentage points higher than on comparable smaller loans,
Brian Faith, a spokesman, said April 17.
``It's still early,'' Ed DeMarco, the deputy director of the
Office of Federal Housing Enterprise, the regulator for Fannie
Mae and Freddie Mac, said today at the conference. ``I do think
we'll see increasing activity in the jumbo space from'' the
companies.

Home Values Fall

U.S. home values dropped 7.7 percent in the first quarter to
the lowest in almost three years, according to estimates by
Zillow.com. Almost 52 percent of homeowners who bought in 2006,
when prices peaked, now owe more on their mortgages than their
homes are worth, the Seattle-based online data provider says.
The FHA, which insures loans as large as 97 percent of a
home's value, has seen insurance on refinance loans surge as
borrowers find few other ways to replace subprime adjustable-rate
mortgages, Brian Montgomery, the agency's head, said today.
The retreat of other sources of financing ``really helps
us,'' Montgomery said in an interview at the conference. The
agency's new-insurance volumes this year will probably at least
double, as refinancing volumes at least triple, he said.