HUD May Enlist Fannie, Freddie as Bias Enforcers

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WASHINGTON -- Sparking sharp protest from mortgage lenders. the government is preparing to turn Fannie Mae and Freddie Mac into enforcers of fair-lending laws.

The Department of Housing and Urban Development has drafted regulations that would require the secondary market agencies to play an active role in stamping out racial bias by lenders selling loans.

Though details are still being worked out. lenders fear that the plan will force a big shift in their relations with the agencies, formally the Federal National Mortgage Association and the Federal Home Loan Mortgage Corp. Until now. mortgage lenders have viewed the two titans primarily as business partners.

"Suddenly you sit with Fannie Mae and Freddie Mac and you wonder what son of information they are gathering behind your back." said Warren Lasko. executive vice president of the Mortgage Bankers Association of America. "It makes you gun-shy."

He said regulatory enforcement is an inappropriate role for Fannie and Freddie. which are chartered by Congress but are owned by private stockholders.

"I don't believe the government should be able to direct a private party to serve as its policeman," Mr. Lasko said.

As the largest players in the home loan market, Fannie and Freddie wield enormous market power. Last year, they bought or securitized some $543 billion in mortgages written by banks, thrifts, and mortgage companies, more than half of the booming $1 trillion market.

Under a draft regulation circulated in the industry in recent days, HUD would require Fannie and Freddie to search for patterns of discrimination by lenders that sell loans to the agencies. The agencies would be required to report any such patterns to the government, or face legal action themselves.

The draft rules, dated Aug. 15, would give HUD "broad discretion" to bar the agencies from doing business with lenders that violate the Fair Housing Act and the Equal Credit Opportunity Act.

Some sources say that HUD, the primary regulator of the agencies, already has watered down the plan somewhat, but the changes are unknown, and the mortgage industry remains very anxious.

Freddie Mac is forcefully voicing opposition to the plans.

"We are certainly not a regulator or an industry's policeman," said Freddie chairman Leland Brendsel recently. "That is the role of government with appropriate authority, as well as with appropriate constraints."

Fannie Mae spokesman David Jeffers said his agency will not comment on regulations that have not been issued. …