Freddie Sees Market Transition

Freddie Mac has strong beliefs for the primary mortgage market, namely that it needs to be "strong, dynamic and profitable," a company executive told the Regional Conference of Mortgage Bankers Associations here.

Paul Mullings, senior vice president of single-family mortgages for the government-sponsored enterprise, said the mortgage business is in a state of transition with some lenders struggling.

Regulators are requesting the industry to tighten its standards, but housing affordability remains a problem. Freddie Mac, he said, is committed to making homeownership possible. This includes investing in education, as the growth markets, underserved borrowers, have different needs than the baby boomers.

Its education effort includes an expansion of its telenovela and an expansion of its predatory lending prevention program, "Don't Borrow Trouble."

Mr. Mullings added that Freddie Mac does not want to "invest in mortgages that will set families up for failure" as homeowners. So there is a need for higher standards for subprime loans.

As for those loans that do go into default, Mr. Mullings pointed to a survey that shows about half of those borrowers never contacted their servicer. If they had, these people would have learned about alternatives available.

Freddie Mac will be part of an Ad Council campaign to get out the message for borrowers to contact their lender to avoid foreclosure.

Thomas Lund, Fannie Mae executive vice president of single-family business, noted there has been a proliferation of products whose purpose is just to get people qualified.

Consumers are taking on the interest rate risk, he said, and many are not fully aware of the risk they were taking.

Fannie Mae backed out of marginal areas of the business and many lenders and investors at the time were not happy.

Fast forward to today, Fannie Mae, he said, feels good about the call it made.

At the end of 2006, Fannie Mae began to say yes to more products as the risk and price correlated. It has even "dipped its toe" in partnering with the industry on subprime. Fannie Mae and Freddie Mac, Mr. Mullings declared, bring "much needed stability to the marketplace" in today's turbulent scene.

Giving an update on Federal Housing Administration reform efforts, federal housing commissioner Brian Montgomery noted last year the House overwhelmingly passed a bill that was killed by the Senate. This year, it could be the first great piece of bipartisan legislation.

There are no plans to loosen FHA underwriting criteria. Being allowed to charge a risk-based premium will allow FHA to reach more customers, he said.

But modernization is not intended to expand FHA more than it is appropriate. The agency's responsibility is to provide borrowers with a safe product at a fair price.

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