Mortgage lending could finally ease if Fannie and Freddie address lenders' buyback fears

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Mortgage lenders could get a lot more willing to extend loans to borrowers with less-than-pristine credit if Fannie Mae and Freddie Mac give them more clarity on what circumstances will trigger demands that mortgage originators buy back loans that go bad, the Wall Street Journal reports.

If their federal regulator goes along, Fannie and Freddie may also roll out new programs allowing them to guarantee some mortgages with down payments of as little as 3 percent. Fannie and Freddie, which require mortgage insurance for most loans with down payments of smaller than 20 percent, will currently buy mortgages in which borrowers have made down payments as small as 5 percent.

The Federal Housing Finance Agency is expected to make an announcement as soon as next week on the new low down payment programs, and on details of agreement clarifying what underwriting mistakes will be considered fraud, potentially triggering a buyback claim by Fannie or Freddie. Source: wsj.com.