Venturing further from its traditional customer base, Fannie Mae is teaming with a nonprofit credit counseling firm to supply mortgages to people with poor credit records.
The government sponsored enterprise, working with the National Foundation for Consumer Credit, will focus on people who are battling back from financial difficulties.
The move comes as Fannie Mae launches various new programs to bolster earnings as the market for conventional mortgages matures.
Officials told analysts in May that they planned to add reverse mortgages and other new products to the agency's menu, and that new credit scoring techniques will enable them to lend safely to people previously deemed too risky.
Under the initiative announced last week, Fannie Mae is making mortgages "attainable, even for people with past credit problems," said Durant Abernethy, president of the consumer credit foundation, which offers consumer education and counseling services through 1,300 offices.
To obtain a Fannie Mae loan through the new program, individuals must be attending debt management classes that are sanctioned by the foundation.
In the past, Fannie Mae would not consider these borrowers until they had graduated from the program and maintained good credit for a couple of year.
Through a pilot rollout begun this summer, Fannie Mae will invest up to $50 million in the mortgages. Lenders including Huntington Bankshares, SunTrust Bank, and Wachovia Bank will originate the loans that Fannie Mae purchases.
The loans will target people who experienced credit trouble because of a job loss or other setback, not those who have a long track record of late payments.
Loans made through the new program will carry rates similar to those paid by borrowers with spotless credit, said Bridget Haragan, director of homebuyer education at Fannie Mae. "Our approach is these loans are as safe" as those made to borrowers who have completed the program and built up their credit.
Fannie Mae plans to package the new loans and sell them on Wall Street as part of conventional loan packages, Ms. Haragan said.
But the approach may raise questions among investors, who usually demand more of a return for investing in securities backed by loans to people who have had credit troubles.
"There should absolutely be concern" if the new loans are positioned alongside Fannie Mae's traditional product, one mortgage trader said. u
