Nonbank mortgage lenders pose greater risks to Fannie Mae and Freddie Mac because they have limited government oversight and generally weaker finances than banks, according to a government watchdog report.

Small lenders and nonbank mortgage firms often lack sophisticated systems or do not have the expertise to manage high volumes of mortgage sales. These problems increase the risk that the government-sponsored enterprises will suffer losses, according to the report due for release Thursday by the Federal Housing Finance Agency's Office of Inspector General.

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