WASHINGTON - Fannie Mae and Freddie Mac are criticizing a government proposal that would require them to boost their financing of low-income housing.
The agencies say the new targets are based on faulty assumptions about the market.
In a rule proposed last fall, the Department of Housing and Urban Development said it would require the Federal Home Loan Mortgage Corp. and the Federal National Mortgage Association to make sure that 38% of the units they financed in 1995 go to low-income and moderate-income borrowers. That target would be 40% in 1996.
In comments submitted last week, both mortgage agencies said the targets were too high.
The Federal National Mortgage Association Mae recommended that the goal remain at 38% in 1996.
The target last year was 30%, but Fannie Mae actually hit 45.7% and Freddie Mac 37%. However, both agencies asserted that HUD has overestimated the size of the low-income market, and failed adequately to account for the cyclical nature of the mortgage business.
Fannie Mae is also taking issue with the way HUD has defined another targeted category - central cities and other underserved areas.
In transitional goals set under the landmark 1992 Act, which revised the regulatory framework for Fannie Mae and Freddie Mac, that category included all areas of a central city.
The proposed rule defines targeted areas in central cities more narrowly to include low-income or minority census tracts.
Freddie Mac has supported the redefinition. But Fannie Mae, which has set up offices in central cities around the country, said again last week that it opposes the rule change.
In its letter, Fannie Mae argued that the new goal would be hard for lenders to understand.
"The concept of central cities (Los Angeles, Chicago, New York, Miami, etc.) is easily understandable by our partners in the market. Specific census tracts within central cities are not," wrote Robert B. Zoellick, general counsel at Fannie Mae.
At least one large city - Los Angeles - wrote in to say that it supports HUD's redefinition because of the pronounced decline of homeownership and the associated deterioration of inner city Los Angeles.
Both agencies renewed their opposition to HUD's requirement that they submit new programs for review. They said existing rules are sufficient, and heightened review would make it difficult to respond to a changing market.
Several lenders echoed this position in letters to HUD.
One market participant - GE Capital Mortgage Corp. - also voiced this argument. But GE also struck a different note.
GE Capital's chairman, Gregory T. Barmore, urged HUD to "be vigilant in assuring nonentry into lines of business which may not be appropriate or within the scope of (Fannie and Freddie's) authority."
