This article is excerpted from a speech Mr. Johnson delivered to the annual convention of the Mortgage Bankers Association in San Diego.

There's a strength in the mortgage finance system - and it is one that is delivered directly by you. It's the strength that comes from the service mortgage bankers provide to consumers. You know who your customers are, and what they need. You know about the communities they live in, the industries they work in, the schools their children go to, and the neighborhoods they are a part of.

That's one reason why Fannie Mae believes that any Respa (Real Estate Settlement Procedures Act) regulation must recognize the valuable contribution of the independent mortgage lender to the homebuying process. We share your concern about practices that restrict competition, invite abuse and increase the cost of homeowning for the families we want to serve.

The outlook for homeownership and housing finance through the balance of the 1990s is very bright.

To help put consumers on the path to homeownership, our industry is providing more consumer information, counseling, customized mortgage products, and lower down payment mortgages than ever before. By the year 2000, Fannie Mae's "Showing America A New Way Home" initiative will have provided $1 trillion in targeted housing finance and will have helped 10 million families to buy homes of their own.

As a result of all these factors, single-family originations will increase to well over $700 billion a year for the next three years and will go above $900 billion in 1999 and to nearly $1 trillion in 2000, and the homeownership rate will increase from 64.7% to about 67.5% by the end of the decade.

At Fannie Mae, we are focusing all our products, all our services, and all our new technologies directly on the seller-servicers who originate and service mortgages, interact with borrowers, and have the financial strength to stand behind their origination decisions. The unique contribution of the retail mortgage lender must be preserved and protected.

I am concerned about the trend I see of retail lending giving way to wholesale lending. In the five years since I have been chairman of Fannie Mae, wholesale lending has grown from less than one-third of the total origination market to about one-half. At Fannie Mae, we've seen the proportion of third-party originated loans delivered to us increase by more than one-third between 1992 and 1995.

Third-party originations are one method the industry uses to reduce fixed costs in response to business cycles. Nevertheless, I fear that the trend toward wholesale lending undervalues the critical role individual mortgage bankers play in the housing finance system.

When wholesalers sweep up more and more mortgages for resale in large volumes, individual mortgages become, in effect, commodities. As this happens, the value you add through your local knowledge, your direct contact with borrowers, and your expert judgment is being stripped away. The result is a lower quality of underwriting and, ultimately, higher costs for homebuyers to compensate for the greater level of risk.

We see the evidence of this loss of value in this performance of the broker-originated loans delivered to us. In 1995, the broker loans delivered to us have a 150% higher rate of serious delinquency than non- broker loans. All loans originated by third parties are more likely to be delinquent than those originated by retail lenders.

Even when there is a substantial down payment, third-party originated loans have higher rates of delinquency than loans of the same type originated by retail lenders.

I urge all those who have been critical of low-down-payment lending - and have predicted it would lead to higher credit losses - to take special note of that fact.

At Fannie Mae, we are firmly committed to increasing access to mortgage credit by making more low-down-payment loans available, because we recognize that the down payment is the single biggest impediment to homeownership. We believe this lending is good for consumers, for Fannie Mae, and for you. Its success, however, rests in part on the underwriting skills, the local knowledge, and the long-term commitment of retail lenders.

To extend out industry's outreach to consumers, especially those who have not been well served in the past, Fannie Mae is adding a new tool to help us evaluate the creditworthiness of a potential homebuyer. We recently began using credit scoring as one part of the overall risk analysis done by our automated underwriting system, Desktop Underwriter.

We intend to use credit scoring as one of a number of tools to expand the market and help us do more for more American families. We believe it adds a valuable dimension to our evaluation of the unique characteristics of each loan application. It also makes it easier for you to quickly process the applications that are clearly headed for approval, so you can spend more time reaching out to new borrowers with the individual attention they need.

Credit scoring also is a part of our approach to loan servicing and loss mitigation. As you know, we have been encouraging an expansion of pre- purchase counseling programs, through our partnerships with counseling agencies and by using the resources of the Fannie Mae Foundation.

We see credit scoring as an important element of those programs. It will help identify current and future borrowers who are creditworthy but may need post-purchase counseling, or a different style of servicing.

We want to explore with you ways of using more effective loan servicing to improve our performance and extend our reach.

Fannie Mae sees credit scoring as a vehicle to do more - not as an excuse to do less. We abhor the use of credit scoring as a way to deny housing finance to those people who need the most help. That's because we want to use our underwriting guidelines, credit scoring and all our policies and products, to expand the housing market, in partnership with you.

We want to help you reach out to new customers, with the tools that make it easier for you to serve them. We won't put mechanical systems and arbitrary numbers above our faith in your judgment. And we won't go back and second-guess loans you have already made and ask you to buy them back if they don't match up to a new way of assessing risks and doing business. We want to be your partner in fighting discrimination, increasing community lending, and fulfilling the industry's obligations to low- and moderate- income families - not your adversary.

But our partnership is a two-way street. We can't and we won't work with you just on the "hard" cases, the special cases, and the riskier loans. The profile of the loans you deliver to us must be similar to the profile of all the conventional mortgages you are originating.

If the risk profile of the business you deliver to us differs substantially from the risk profile of your overall book of business, then we will have no choice but to believe that we have been "adversely selected." That is a practice that we will not accept, and a trend that the housing finance system cannot sustain.

Mr. Johnson is chairman of the Federal National Mortgage Association.

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