GSEs Urged to Stop Certain MBS Purchases

The Office of Federal House Enterprising Oversight is pushing Fannie Mae and Freddie Mac to stop their purchases of private-label mortgage-backed securities if the underlying mortgages don't comply with nontraditional mortgage and subprime guidance."We are working closely with the enterprises so that going forward these rules will apply to mortgages they purchase directly and through private-label MBS," OFHEO Director James Lockhart said in a speech to the Exchequer Club. The guidance issued by the federal banking regulators imposes tough underwriting standards on interest-only, payment-option, and subprime mortgages. Fannie and Freddie have agreed to comply with nontraditional mortgage guidance with respect to purchases of whole loans, and they are expected to adopt the subprime guidance soon. After his speech, Mr. Lockhart indicated to reporters that his discussions with the GSEs about their purchases of private-label MBS are going well. He said the talks are focused mainly on implementation issues.