WASHINGTON -- The challenge of doing more affordable housing lending for Freddie Mac lies in learning to do tailored, community-oriented lending on a wholesale scale, a top agency executive said.

The agency must learn to replicate small pilot projects on a wholesale level, so that it can inl vest in affordable housing loans in the same "hands-off or arms" length" way as other loans, said Ann Schnare, vice president of housing economics at the Federal Home Loan Mortgage Corp.

"That is the only thing that is going to move our numbers in anything but a handful," Ms. Schnare said in an interview last week.

As an example, she pointed to a Freddie Mac pilot that allows low- and moderate-income borrowers to obtain loans using alternative underwriting guidelines, even if the borrower's mortgage exceeds the "front-end ratio."

This is the ratio between a household's housing debt and all other debt, and is one measure long used to gauge a borrower's capacity to repay a mortgage. Instead of that ratio, underwriters in the pilot program look to see if borrowers have been making comparable rent and other payments regularly.

It may turn out that the frontend ratio is "an unnecessary barrier," Ms. Schnare said. If so, the pilot program could be replicated in Freddie Mac's wholesale business.

Wary of 3%-Down Loans

Ms. Schnare, who is the agency's top financial researcher, also described some of Freddie Mac's studies that make the agency wary of investing in the 3% down loans recently rolled out by several mortgage insurers.

Default rates on loans to lowand middle-income borrowers show more or less the same patterns, Ms, Schnare said. As down payments fall, defaults rise, she said.

That research suggests that low-down-payment loans may not be the way to help low-income borrowers, Ms. Schnare said.

Down payment is often cited as one of the main barriers to getting a mortgage, and the Federal National Mortgage Association is experimenting with 3%down programs for low-income borrowers.

To mitigate the higher risk of such loans, Fannie Mae's pilot program is confined to a small group of lenders who intensively counsel borrowers on how to manage household finances.

Ms. Schnare expressed concern that there is no statistical evidence that shows whether counseling works.

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