WASHINGTON -- Fannie Mae, bowing to lenders and a leading member of Congress, has agreed to buy some refinanced mortgages with as little as 5% borrower equity. It previously required 10% equity.

The policy shift, announced Friday by agency chairman James Johnson, is expected to spur refinancings in the Northeast and California, where falling house prices have blocked many homeowners from refinancing.

Leading mortgage executives had been working behind the scenes to bring about a loosening of the agency's requirements. The agency also was pushed by Rep. Joseph Kennedy 2d, D-Mass., said a Fannie Mae spokesman.

"Fannie Mae did all Fannie Mae can do," said Warren Lasko, executive vice president of the Mortgage Bankers Association of America. "We have advanced the ball far down the field."

Restriction Causes Concern

Some lenders, however, are concerned by certain conditions that Fannie Mae placed on buying refinanced loans with 5% equity. Most notably, the option will be available only to homeowners whose original mortgages had been sold to Fannie Mae.

Ed Sensor of Vermont-based Banknorth Mortgage Co. said the stipulation could put a big burden on lenders to establish whether a refinancing applicant's existing mortgage had been sold to Fannie Mae.

Freddie Mac, the rival secondary-market agency, is looking at the issue, said spokeswoman Marcia Davies. She said Fannie Mae's announcement would not affect Freddie's deliberations.

A Sea Change

Fannie's new policy, even with its conditions, though, marks a big shift for the agency, formally the Federal National Mortgage Association. Just two months ago, Mr. Johnson dismissed as "an old idea" the possibility of buying refinanced loans with lower equity.

"Our view has been and continues to be that we should not change our underwriting standards for purposes of refinance," he said at a September press gathering.

On Friday, he told reporters that that the change was prompted by additional "anecdotal evidence that [the issue] was a concern."

Mr. Johnson also said the company believes the move is "prudent in terms of our risk exposure."

Rep. Kennedy recently introduced a bill to create a federal insurance agency that would guarantee the first 5% of a no-equity loan. He apparently also urged Fannie Mae to help homeowners with low equity to refinance. Rep. Kennedy could not be reached for comment on Friday.

Meanwhile, Rep. Henry Gonzalez, D-Tex., cited press reports of Mexican interest in a secondary mortgage market, and sought assurances that Fannie Mae had no plans to enter that market.

Mr. Johnson said, "Fannie Mae has no plans to buy or sell Mexican loans." He said the company had offered to advise Mexico, as well as several other countries, on the subject.

But Mr. Gonzalez pressed the matter.

"It's more than experienced advice that they're seeking," he said.

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