Fannie, Freddie Aid Mortgage Banks: Report

WASHINGTON (TheStreet) - Fannie Mae (FNM Quote)and Freddie Mac (FRE Quote) are in the process of introducing a program that will help independent mortgage banks acquire short-term credit for financing home loans and also reduce risks these banks are exposed to, a report says.

Under the program, the two government-backed mortgage companies will provide advance commitments to banks to purchase home mortgages that meet certain standards, the Wall Street Journal reports, citing people familiar with the plans.

Fannie and Freddie are planning to build on a previously undisclosed pilot program that Freddie has with Provident Funding Associates, a large national mortgage lender based in Burlingame, Calif., and with NattyMac, a warehouse lender based in St. Petersburg, Fla., that provide short-term funding to mortgage companies. Under the terms of the pilot program, Freddie makes commitments to purchase loans made by Provident Funding that are financed by NattyMac. The latter in turn is responsible for ensuring that the loans meet certain standard criteria set by Freddie Mac.

The objective of the program appears to be aimed at supporting independent mortgage banks which have either gone out of business or are losing market share to better-capitalized firms over the past two years.

The three biggest mortgage lenders -- Wells Fargo(WFC Quote), Bank of America (BAC Quote) and JPMorgan Chase (JPM Quote) accounted for almost 52% of new home mortgages in the first half of 2009, compared with only a 37% share in 2007, the Journal reports, citing information from trade publication Inside Mortgage Finance.