Fannie Mae and Freddie Mac to Help Subprime Borrowers -- WSJ

Government-backed mortgage finance companies Fannie Mae and Freddie Mac are expected to announce today that they will provide means by which struggling subprime mortgage holders can avoid foreclosure. Fannie Mae CEO Daniel Mudd will testify before the House Financial Services Committee, where he is expected to unveil a new product line that will give borrowers the option of refinancing out of the kind of adjustable-rate mortgages that characterize subprime loans. Fannie Mae will also ease its credit requirements to allow more borrowers to qualify. In addition, Fannie Mae will buy 40-year loans as well as 30-year loans in the secondary market, which should "shave the monthly payment by about 5%." Freddie Mac Chairman and CEO Richard Syron is expected to tell the committee that his company will be putting 30- and 40-year subprime loans with reduced margins and longer fixed-rate periods into the market by the summer.

Sources: Wall Street Journal, Reuters
Commentary: Fannie Mae and Freddie Mac: OFHEO Releases Harsh Judgments • Freddie Mac Moves to Contain Subprime Fallout • California, Fannie Mae Sever Ties With New Century
Stocks/ETFs to watch: Fannie Mae (FNM), Freddie Mac (FRE). Competitors: Citigroup Inc. (C), Countrywide Financial Corp. (CFC), Wells Fargo & Co. (WFC). ETFs: Rydex S&P 500 Pure Value (RPV), iShares Lehman 7-10 YR Treasury Bond (IEF), iShares Lehman 20+ YR Treasury Bond (TLT)
Conference call transcripts: Freddie Mac Q4 2006

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