Fannie and Freddie to Aid Mortgage Banks

Fannie Mae and Freddie Mac are preparing to introduce a program aimed at helping independent mortgage banks acquire the short-term credit they need to make home loans, according to people familiar with the plans.

The two government-backed mortgage companies, the main providers of funding for U.S. home loans, plan to provide advance commitments to purchase home mortgages that meet certain standards. The goal is to reduce risks faced by independent mortgage banks so they can obtain short-term credit.

Spokesmen for Fannie and Freddie declined to discuss details of the plan, and the companies’ regulator, the Federal Housing Finance Agency, declined to comment.

But other people briefed on the situation said Fannie and Freddie plan to build on a previously undisclosed pilot program that Freddie has with Provident Funding Associates LP, a large national mortgage lender based in Burlingame, Calif., and with NattyMac, a so-called warehouse lender based in St. Petersburg, Fla., that provides short-term funding to mortgage companies.

Under that pilot program, these people said, Freddie makes commitments to purchase loans made by Provident Funding that are financed by NattyMac. NattyMac is responsible for ensuring that the loans meet certain quality standards set by Freddie. The commitments from Freddie reduce the risk that NattyMac or Provident will be stuck with loans that are rejected by Freddie or Fannie and can be sold to other investors only at a huge discount.

Provident Funding officials couldn’t be reached for comment. A spokesman for NattyMac’s parent company, Guggenheim Partners LLC, a New York-based financial-services concern, declined to comment.

Many independent mortgage banks have gone out of business or reduced their lending in the past two years because they have been unable to get enough funding from warehouse lenders. Wall Street firms and some big banks have withdrawn from the business, partly to conserve capital for other purposes. As a result, independent mortgage banks are losing market share to better-financed banking giants.

In this year’s first half, the three biggest mortgage lenders — Wells Fargo & Co., Bank of America Corp. and J.P. Morgan Chase & Co. — accounted for 52% of new home mortgages, according to Inside Mortgage Finance, a trade publication. In 2007, the top three had a 37% share.