Freddie Mac says its first significant foray into the non-conforming loan market will revolutionize the industry for these credits.

The housing agency predicts more banks will offer the loans, underwriting will change, and consumers will pay lower rates.

"This represents a major step forward," said Peter Maselli, vice president of automated underwriting at Freddie Mac, formally the Federal Home Loan Mortgage Corp.

Mr. Maselli was discussing a new program in which an affiliate of Countrywide Credit Industries will buy nonconforming loans that lenders have evaluated using Freddie Mac's software.

The affiliate, Independent National Mortgage Corp., or Indy Mac, will act as a conduit and securitize the loans, and Countrywide will handle servicing that lenders don't want on their hands. Indy Mac has committed to purchasing at least 150,000 loans during the next five years.

Speaking at a press briefing on Wednesday, Mr. Maselli said the system would break down cost and technological barriers that have kept lenders out of nonconforming lending.

The program will also be quick and inexpensive, allowing lenders to pass savings on to borrowers, he said.

Freddie Mac also says its software will expand the use of automated underwriting of nonconforming loans, an activity that has heretofore been handled by individuals.

Freddie Mac will begin the program with three lenders - Amerus Mortgage, Headlands Mortgage Co., and Old Kent Mortgage Co. Another 500 lenders will be on-line in coming months, executives with the program said.

Freddie Mac and the rival Federal National Mortgage Association, or Fannie Mae, cannot buy the nonconforming loans. These credits exceed the agencies' $207,000 cutoff, or carry less than perfect credit and are known in the industry as B and C loans.

Despite the prohibition, Freddie Mac stands to benefit from the nonconforming loan program. The agency will expand the use of its underwriting system, collect loan fees, and be in line for loans that are found to be within its purchase parameters.

Industry experts are taking a wait-and-see approach to Freddie's initiative. They said the program would probably have sparse appeal for very small lenders that have limited operations and very large companies that already operate their own conduits or have strong connections to outside companies. The program will have its biggest market with midsize lenders. There are a number of midsize lenders, but they may require some cajoling before they join the program, analysts said.

For its part, Fannie Mae, which also has an automated underwriting system, plans to steer clear of involvement with B and C loans, a spokesman said.

He added, however, that the agency is working on a program for jumbo loans that would operate along the lines of the Freddie Mac initiative. The spokesman said Fannie expects to roll out the program later this year.

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