(Adds background, details)
By Corbett B. Daly
WASHINGTON, July 28 Stricter lending standards
adopted last year by Fannie Mae FNMA.OB are beginning to pay
off as the mortgage finance giant's "new book" of business is
the strongest in a decade, the firm's chief executive said on
Fannie Mae is emphasizing safer, long-term, fixed-rate
loans and asking lenders to make loans on homes with better
appraisals, to borrowers with better credit and better
documentation of income.
"If you take all of these factors together, we're building
the strongest book of business we've seen in the last decade,"
CEO Michael Williams said in remarks prepared for delivery to
the group Women in Housing and Finance.
Fannie Mae and sister company Freddie Mac FMCC.OB buy up
mortgages to free up lenders to lend again.
They have taken more than $145 billion from taxpayers since
then-Treasury Secretary Henry Paulson seized them in 2008 as
mortgage losses ballooned amid a housing market meltdown and
severe financial crisis.
Williams said the tighter lending standards for Fannie Mae
would make it harder for future generations to buy a home but
"for the right reasons," as borrowers need to be prepared for
homeownership to be successful homeowners.
"This is all healthy. It means we have a good chance to put
in place a sustainable housing recovery, one with the right mix
of owners and renters in this country," he said.
Homeownership rates fell from a peak of 69.0 percent in
2004 to 66.9 percent in the second quarter of this year,
according to the Commerce Department. Each percentage point
drop represents roughly a million former owners who have become
The tighter standards may be too strict.
"They are not helping credit-worthy borrowers obtain
mortgage financing, which is a significant deterrent to the
housing recovery," said Brian Chappelle, a housing consultant
at Potomac Partners in Washington.
ADMINISTRATION PLAN BY JANUARY
Fannie Mae and Freddie Mac backed $192 billion in new
mortgage originations in the second quarter, down 12.4 percent
from the first three months of the year, according to data to
be released Thursday by Inside Mortgage Finance.
Williams made the rare speech as public debate heats up on
the future of Fannie Mae and Freddie Mac.
Treasury Secretary Timothy Geithner said on Tuesday the
Obama administration would present its plan for the two firms
to Congress by January.
And Congress is expected to hold hearings on the U.S.
housing finance system in coming months. Some Republicans on
Capitol Hill have called for the abolition of Fannie Mae and
That's unlikely to happen as Rep. Barney Frank, who heads
the House Financial Services Committee with oversight over
Fannie Mae and Freddie Mac, earlier this year said "you can't
really tear down the old jail until you've built the new one."
Any new system could take years to implement.
The government directly or indirectly backed 82 percent of
newly issued mortgages in the second quarter, including loans
backed by the Federal Housing Administration and the Veterans
Administration, according to Inside Mortgage Finance.
Williams declined to comment on possibilities for the
future structure of Fannie Mae, but he said the firm "knows
that change is coming."
"We understand that many options are on the table. And we
feel confident that we are taking the steps necessary to
prepare for all outcomes and put the company on the right
track," Williams said.
The financial regulatory overhaul, which was signed into
law by President Barack Obama last week, did not address
reorganizing Fannie Mae and Freddie Mac, though it did restrict
some mortgage lending practices that led to risky loans.
(Reporting by Corbett B. Daly; Editing by Andrew Hay and Todd