Fannie Mae is relaxing its underwriting standards to help refinance homeowners who are facing imminent payment shock due to adjustable-rate subprime mortgages.For borrowers current on their existing ARM, Fannie will overlook unpaid bills on their credit reports to get them into a safer and more affordable mortgage with a 40-year amortization period, if necessary. In congressional testimony, Fannie president and chief executive Daniel Mudd says 1.5 million borrowers could potentially be eligible for this refinancing option over the next two years. Fannie Mae calls this its "HomeStay" initiative. "Our message to lenders with borrowers facing resetting ARMs is this: If your homeowner has managed his credit over the past 12 months, there's a chance Fannie Mae can help," Mr. Mudd told a House Financial Services subcommittee that is looking for possible solutions to rising foreclosures. Fannie Mae can be found online at http://www.fanniemae.com.

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