Monday, July 16, 2007

Fannie and Freddie to tighten policies

The two GSEs announced that new lending policies will be effective as of September 13. These come as a response to a directive issued by the federal agency overseeing the mortgages giants. Fannie Mae and Freddie Mac will require that borrowers’ ability to repay loans be evaluated more carefully. Lenders will also have to improve their risk-management practices to keep pace with the increasing risk associated with the industry.

The Office of Federal Housing Enterprise Oversight (OFHEO) which regulates the two companies, called the new rules “a significant step”. Because Fannie and Freddie buy mortgages from both banks and other financial institutions that do not fall under federal regulation, the new policies will, “create market pressure for improved standards among non-banks” according to Sheila Bair, chairman of the Federal Deposit Insurance Corp. (FDIC).

All nontraditional mortgages issued on or after September 13 will be subject to the new rules.

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