A recently formed coalition of lenders and insurers is vowing to continue its battle to keep Fannie Mae and Freddie Mac in check despite the olive branches that the government-sponsored enterprises extended last week.

"It's just beginning," Gerald L. Friedman, the coalition's chairman, said in an interview last week.

"We want Congress to take a look at the role the GSEs ought to play in the new millennium. Review the charter," he said.

The Competitive Consumer Lending Coalition is made up of several large financial services companies and trade groups. Its mission: to prevent Fannie and Freddie from expanding their lines of business beyond the secondary market for mortgages.

Fannie chairman Franklin D. Raines and Freddie president David W. Glenn made conciliatory speeches last week at the Mortgage Bankers Association's national secondary conference.

Both executives emphasized the need for cooperation in the industry and proposed schemes that would give lenders more choices in selecting an automated underwriting system. The agencies' insistence that lenders use their systems had provoked an outcry in recent months and was part of the impetus for the formation of the coalition.

Mr. Friedman would not name any of the financial services companies in it, but other industry sources said it includes such heavyweights as General Electric Co., Chase Manhattan Corp., and insurance giant American International Group Inc.

Both sides are likely to claim they have consumers' interests at heart. Historically Fannie Mae and Freddie Mac have battled proposals to tax them by lobbying Congress with warnings that such initiatives would hurt the consumer by raising mortgage rates.

Fannie Mae's chairman struck that chord when asked if the new coalition would get off the ground.

"The Coalition for Higher Mortgage Rates? I'll believe it when I see it," he said. "I don't think there are very many people who believe they can convince Congress" that mortgage costs should be raised.

Mr. Friedman said that if Fannie and Freddie were allowed to establish a "duopoly" in mortgage lending and other financial services, consumers would be much worse off.

"We are for the cheapest products and services for the consumer," he said. "That can only come from a vibrant, competitive market."

And the new group is able to claim the support of perhaps the best-known consumer advocate in the nation, Ralph Nader, who said in an interview that the agencies' implied government guarantee threatens to cause a "traditional antitrust problem."

"Any effort by business groups to level the playing field and roll back the monopolistically headed market share of Fannie Mae and Freddie Mac is important," Mr. Nader said. "It's about time that the private sector organized to try and dilute the almost mystical power that Fannie Mae has over the Congress and the White House."

Previously the opposition has been "very fractured and dispersed," he added. But it is important to challenge the two companies, he said, because "otherwise, the people who want to offer different services and possibly more innovative services are going to be driven out."

To sway Congress, the coalition will have to compete with the massive lobbying clout of Fannie and Freddie. To this end, the coalition has already raised "millions" of dollars, Mr. Friedman said, and has hired four lobbyists in Washington, including former Republican National Committee chairman Haley Barbour.

Fannie and Freddie appear to be doing their best to thwart the new group. After the coalition interviewed two Washington lobbying firms- Williams & Jensen, and Griffin, Johnson, Dover & Stewart - Fannie Mae hired them away within 24 hours, Mr. Friedman said.

A lobbyist at one of the two firms confirmed Mr. Friedman's account. "Many of us had long-standing relationships and friendships with people at Fannie Mae," said the lobbyist, who spoke on condition of anonymity.

He added that Fannie offered "far less" money than the coalition, and that working for the coalition would have been more challenging, because Fannie already has so many lobbyists on its side.

According to Mr. Raines, "We've hired our own firms, we've never paid anybody not to represent the coalition."

Mr. Friedman, who founded bond insurer Financial Guaranty Insurance Co. and the innovative mortgage insurer Amerin Guaranty Corp., said he was undaunted by such setbacks. "This is a marathon not a sprint. We have time to develop the plan and work it very carefully," he said.

In recent months large lenders who had invested millions of dollars in their underwriting systems complained that Fannie and Freddie were trying to force their systems on them.

But last month, Freddie cut a deal with Norwest Mortgage that would allow Norwest to continue to use its own system for originations in exchange for selling Freddie most of its conforming loans. The two companies will also share credit-risk data bases.

At last week's convention, Fannie and Freddie announced their plans to enable lenders to access other companies' automated underwriting systems, but neither Fannie nor Freddie could promise that these systems would be available free of charge. Fannie said it would offer fee-based access to its internal network, with no additional charge for using its engine. Freddie is offering free access through the Internet, but will continue to charge for the use of its system.

But "open architecture"-a lender's ability to use any underwriting system it wants and still be able to sell loans to Fannie or Freddie-is not the only issue on the coalition's agenda.

Last week, Mr. Friedman outlined the coalition's eight planks. In addition to encouraging open architecture, the top items on the coalition's agenda are:

Confining the GSEs to buying loans.

The coalition's members fear Fannie and Freddie will try to sell mortgages and other financial products and services directly to consumers; they note Fannie's failed attempt two years ago to offer free credit life insurance to homeowners.

"They should be confined to providing liquidity for conventional home loans," and in the secondary market, not the primary market, Mr. Friedman said.

Assuring that the GSEs' technology does not put more power in brokers' hands.

Mr. Raines assured the MBA gathering that Fannie does not want brokers to "auction" among lenders a loan approved by Fannie's automated underwriting system.

But the issue of broker control continues to be a sticking point with Freddie Mac. Under Freddie's new Internet platform, decisions made by its Loan Prospector system would simultaneously be sent directly to brokers and wholesale lenders.

Theoretically, this would enable brokers to shop around loans approved by Loan Prospector, some mortgage executives say.

Promoting risk-based capital requirements for the GSEs comparable to other financial institutions.

Two years ago, Standard & Poor's determined that the risk to the U.S. government of guaranteeing Fannie and Freddie was AA-minus. But those credit ratings were predicated on the GSEs' ability to raise financing efficiently and cheaply, not on their capital adequacy, Mr. Friedman said. "They have less capital than their private-sector counterparts."

Preventing the GSEs' from insuring low-down-payment loans.

Mortgage insurers viewed Fannie and Freddie's recently announced reduced-insurance schemes as incursions on their turf. The "delivery fee" the GSEs would charge for less coverage amounts to an insurance premium, Mr. Friedman said.

In an effort to allay concerns, Mr. Raines used last week's conference to enumerate four "cornerstones" for its relationship with mortgage bankers.

Fannie Mae is a partner for lenders. "Fannie Mae will not originate mortgages," but will be a partner for the secondary market, he said. "Our growth strategy is not to find a new line of business or to take your place, but to harness the capital markets to help you grow."

Fannie wants to expand lenders' business. Mr. Raines said Fannie's expanded appetite for purchasing low-down-payment home loans has broadened the market for lenders.

Fannie has one customer-mortgage lenders. He told the lenders that "brokers are not our customers-they're yours."

Fannie will focus on lenders' profitability. He said Fannie provides loss mitigation technology and helps reduce servicing costs.

Such remarks were encouraging to the heavyweights in the coalition, but have not completely placated them.

"We have been involved in discussions with a number of industry participants and trade associations about GSE issues," said a spokesman for GE Capital Mortgage Corp., which owns a lender and a mortgage insurer.

Luke S. Hayden, executive vice president at Chase's mortgage unit, would not confirm or deny Chase's involvement in the coalition, but said Mr. Raines' and Mr. Glenn's announcements "seem to be a step in the right direction. We're pleased the GSEs are willing to consider other systems."

Mr. Friedman emphasized that the coalition's mission is "about balance. We're not denying the wonderful role (the GSEs) have been playing in providing liquidity. They've fulfilled their responsibility and added a great deal of value to housing in America."

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