WASHINGTON May 6 Mortgage financiers Fannie Mae
and Freddie Mac will limit their purchases
to loans that meet a new federal definition of a "qualified
mortgage" starting next year, the housing giants' regulator said
The definition comes from new rules finalized earlier this
year that require mortgage lenders to verify borrowers' ability
to repay their loans.
Lenders who issue qualified mortgages, which may have fees
that add up to no more than 3 percent of the loan amount and
loan terms of up to 30 years, are assumed to meet the
ability-to-repay requirement and receive some protection from
The Federal Housing Finance Agency (FHFA) said the two
government-owned companies would buy only loans that meet that
definition or that are exempt from the ability-to-repay rules.
"Adoption of these new limitations by Fannie Mae and Freddie
Mac is in keeping with FHFA's goal of gradually contracting
their market footprint and protecting borrowers and taxpayers,"
the regulator said in a statement.
Fannie Mae and Freddie Mac provide financing to banks and
other lenders by purchasing mortgages to either hold or
repackage as securities that are sold to investors. They were
seized by the government in 2008 as mortgage losses mounted
during the financial crisis.
The two, which do not make loans, back about half of
existing home loans. The government-sponsored enterprises have
received $187.5 billion of taxpayer funds to stay afloat.
After poor underwriting standards helped fuel the 2007-2009
financial crisis, the Dodd-Frank law created the Consumer
Financial Protection Bureau and told it to write rules that
would force lenders to make sure borrowers could pay back loans.
The law also called for a category of safer, lower-priced
loans that lenders could make in exchange for some protection
from lawsuits arising from ability-to-repay disputes.
The bureau issued its final rules in January and said the
requirements would take place in January 2014. In addition to
capping loan terms and fees, it said qualified mortgages must go
to borrowers whose debt does not exceed 43 percent of their
While experts said the rules were less onerous than banks
feared, some lenders said there would be little incentive to
issue non-qualified mortgages. The FHFA's directions to Fannie
and Freddie to buy only qualified loans could cause such
concerns to resurface.
The consumer bureau did not immediately respond to a request
for comment on the FHFA announcement on Monday.
The FHFA said the companies would be allowed to buy loans
that fit a temporary qualified mortgage status that the CFPB
created to ease the transition to its new requirements.