A controversial plan to let Freddie Mac offer an alternative to private mortgage insurance for low-down-payment loans was approved by the House on Tuesday as part of an appropriations bill.

The provision was submitted as a "technical" amendment to the appropriations bill for the Veterans Administration and the Department. of Housing and Urban Development.

Freddie Mac and its larger rival, Fannie Mae, are required under their charters to protect themselves against default risk when the down payment is less than 20% of the loan amount. The plan approved Tuesday would let Freddie do so by self-insuring, cutting mortgage insurers out.

Thomas H. Stanton, a critic of Fannie and Freddie, said the measure would lower costs for Freddie by letting it take further advantage of its "government-subsidized credit." Mr. Stanton, a lawyer, wrote a book about the risk to taxpayers of government-sponsored enterprises.

Currently, Freddie Mac either requires borrowers to get private mortgage insurance or gets the lender to agree to replace the loan if it goes bad. Private mortgage insurers provide coverage on about 14% of mortgage loans.

Leland C. Brendsel, chairman and chief executive officer of Freddie Mac, downplayed the new authority, saying, "Our current charter allows alternatives to private mortgage insurance as a means to provide flexibility in insuring that mortgage credit is available for lower down payment mortgages."

But the Mortgage Insurance Companies of America, trade group for the private mortgage insurance industry, said the legislation would allow a "major expansion of the authority of a government-sponsored corporation that would expose taxpayers to potential liability of $65 billion over the next five years."

The group said the proposal "would harm an efficient, well-capitalized, and well-regulated private industry for no public purpose."

The group also said Freddie Mac had attempted to push through the amendment "without benefit of public hearing or debate, and at a time when the economy is beginning to show signs of stress."

Mr. Stanton, the critic of the government-sponsored enterprises, said the legislation "further concentrates risks and moves the risk from the well-capitalized private sector to the government-subsidized GSE market."

The bill is expected to come to a vote in the Senate this week.

The groundwork for the amendment was laid by Sen. Alfonse M. D'Amato, R- N.Y., in a Sept. 23 letter to Sen. Chistopher "Kit" S. Bond, R-Mo. Sen. D'Amato said the "technical provision" in the HUD/VA appropriations bill "would enable Freddie Mac to expand homeownership opportunities by lowering the cost of mortgage loans with low down payments.

"The protections against default loss available to Freddie Mac remain statutorily restricted," he added. "My technical change will provide Freddie Mac with the flexibility to use the most appropriate form of a default loss protection and provide the lowest-cost financing for low-down- payment loans while maintaining the safety and soundness of the enterprises."

Sen. D'Amato attached a letter from Mark A. Kinsey, acting director of the Office of Federal Housing Enterprise Oversight, which oversees the financial safety and soundness of Fannie Mae and Freddie Mac. The letter concluded there would be no adverse effect on safety and soundness.

Fannie Mae appeared happy to be on the sidelines. "This is something that has been initiated by Freddie Mac, not by Fannie Mae," said a spokesman. "There are already some mechanisms for alternative risk dispersion techniques," he said, adding that "we see mortgage insurers as risk dispersion partners."

As for the pending legislation, "We are certainly going to watch the outcome carefully," he said.

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