Magazine article American Banker

1st Franklin Chief Says He's Game for Freddie Deal

Magazine article American Banker

1st Franklin Chief Says He's Game for Freddie Deal

Article excerpt

An outspoken critic of Fannie Mae and Freddie Mac's expansion into the subprime market now says he is willing to become a "guarded partner" to Freddie.

William D. Dallas, founder and chief executive of San Jose, Calif.-based First Franklin Financial Corp., said this week that he would be open to trading loan-level information on mortgages Franklin has originated in exchange for a credit "wrap" from Freddie on upcoming securitizations of those mortgages.

In the arrangement, he said in an interview at the Mortgage Bankers Association's subprime conference, Freddie would receive access to data on the performance of the loans underlying the securitizations -- data that Freddie needs to plunge deeper into subprime waters. Mr. Dallas said such arrangements are a "good strategy" for subprime lenders.

A spokeswoman for Freddie said that because the company has been making these types of deals for more than three years, it can study the market before moving in full speed. Freddie Mac now works with 26 subprime lenders, she said.

"It gives us access to the loans so that we can study their performance," the spokeswoman said. "It's our way of beginning to explore how we can move deeper down the credit-risk spectrum."

She said Freddie buys the loans in pools and that they are then "credit enhanced" to protect the company from risk. Another Freddie official at the subprime conference would not discuss talks with First Franklin or any specific subprime lenders.

Mr. Dallas' change in tune may come as a surprise to some; in recent months, Mr. Dallas has openly criticized Fannie and Freddie. Their entry into the subprime market, he and others have argued, is depressing margins and reeks of unfair competition.

But the chance to obtain a better execution on his future securitizations appears to have won Mr. Dallas over. …

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