The federal regulator of Fannie Mae and Freddie Mac issued rules Thursday that will bar the mortgage finance giants from receiving credit to meet mandates to support housing goals by purchasing mortgage-backed securities.
The rules, which were proposed earlier this year, are designed to give the companies greater flexibility in satisfying government mandates to serve low-income homeowners without taking on additional risks.
The Federal Housing Finance Agency will still require the companies to target a certain amount of their loan purchases toward low-income and underserved areas, but it will adjust the rules depending on market conditions.
In the late 1990s and throughout the past decade, government regulators steadily increased affordable housing targets. Fannie and Freddie's then-regulator eventually allowed the companies to meet those goals by buying private-label mortgage-backed securities. The companies became two of the largest purchasers of those securities.
The affordable housing goals are at the center of a heated debate over what hastened the downfall of the companies, which were taken over by the government two years ago. Critics say the government rules, at worst, encouraged the companies to loosen their standards to meet the goals and, at best, gave them greater justification to boost profits by engaging in riskier lending. Obama administration officials have said the rules weren't primarily to blame for Fannie's and Freddie's foray into riskier lending.