U.S. regulator targeting lower down payments on mortgages

The regulator of Fannie Mae (FNMA.OB) and Freddie Mac (FMCC.OB) said on Monday it was developing rules to let Americans buy homes with down payments as low as 3 percent, part of a push to boost access to credit.

Mel Watt, director of the Federal Housing Finance Agency, pledged the new guidelines for the two taxpayer-owned firms would be "sensible" without putting the safety of financial markets at risk.

"(They) will be able to responsibly serve a targeted segment of creditworthy borrowers with lower down payment mortgages," he said in a speech.

The two firms don't lend money directly, but rather buy mortgages from banks and then resell them with a guarantee. Over the last few years, both had stopped accepting most loans with 3 percent down payments after being criticized with helping inflate a housing bubble that burst during the 2007-09 recession.

But Watt, who was picked for his post by President Barack Obama, has made extending access to credit a priority since he took the helm at the FHFA in January.

He said the lower down payments would be allowed when taking into account "compensating factors" without specifying what those factors would be.

He also said the two firms, which guarantee most new mortgages in the United States, will change rules that will make it harder for them to force banks to repurchase faulty loans from the mortgage agencies.

The requirement for banks to buy back faulty loans from Fannie and Freddie is meant to encourage lending institutions to more carefully vet loan applications before offering financing. But lenders say the rules on buybacks are not clear, making the job of the banks more difficult and contributing to tighter credit.

Watt said guidelines released in the coming weeks would spell out more clearly when banks would be compelled to take back loans.

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Fannie Mae, Freddie Mac

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