Fannie Mae And Glenfed In Record CRA Pact

Glendale Federal Bank said Tuesday that it will make $1 billion of mortgage loans to lower-income people and convert the loans into securities through the Federal National Mortgage Association.

The securitization commitment is the largest of its kind made by Fannie Mae with a single financial institution. It comes at a time when both the federal mortgage agency and Glendale Federal, the nation's fourth-largest thrift, are under pressure to increase lending to low-and moderate-income communities.

Glendale's $1 billion plan, to be carried out over the next three years, is four times the size of Fannie Mae's previous record deal for lower-income mortgages, an agency spokesman said. The earlier $250 million program was announced in August 1990 with BankAmerica Corp.

Freddie's Effort

The rival Federal Home Loan Mortgage Corp., known as Freddie Mac, said its largest arrangement of this kind was for $50 million of loans originated by a nonbank, PHH US Mortgage Corp.

Chartered by Congress but owned by private shareholders, Fannie Mae and Freddie Mac buy and securitize home loans from banks, thrifts, and mortgage companies around the country.

Policymakers and community activists have been calling on the agencies to markedly increase their support of loans to lower-income homebuyers.

The issue came to a head after the Federal Reserve Board released data this fall showing that only 19% of the loans each agency bought last year had been extended to such buyers. Previously, regulators had thought the share was more than 30%.

Meanwhile, Glendale Federal, the principal subsidiary of Glenfed Inc., recently suffered a downgrade in its rating for compliance with the Community Reinvestment Act. The Office of Thrift Supervision lowered the rating from "satisfactory" to "needs improvement." The latter is the third-best of four possible scores.

Aiming for Top Grade

The Southern California thrift, which has $20 billion in assets, has mapped out plans to obtain the highest CRA grade, "outstanding," within a year, said Paul E. Mullings, a senior vice president. The Fannie Mae deal is part of that plan, giving the thrift "a formal outlet" for loans to lower-income people, he said.

Mr. Mullings added, however, that the deal was in the works for several months before the downgrade of the reinvestment rating.

Under the deal, Glendale Federal will give Fannie Mae newly originated loans in exchange for mortgage securities guaranteed by the agency. Mr. Mullings said the thrift will hold some the securities and sell the rest, in proportions that have yet to be determined.

In addition to seeking a higher CRA rating, Glendale Federal is trying to boost its profits. Glenfed recently carried out a sweeping reorganization that eliminated about 2,200 positions, or 25% of the staff.

The deal is being carried out under a Fannie Mae community lending program that entails flexibile underwriting criteria for eligible borrowers.

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