Federal Home Loan Mortgage Corp

The Obama administration is considering an overhaul of Fannie Mae and Freddie Mac that would strip the mortgage finance giants of hundreds of billions of dollars in troubled loans and create a new structure to support the home loan market, government officials said. The bad debts the firms own would be placed in new government financial institutions -- so-called bad banks -- that would take responsibility for collecting as much of the outstanding balance as possible.

Fannie Mae and the Federal Home Loan Mortgage Corp. said Wednesday that they will increase the limit on the size of mortgages they will buy in 1997 by 4%, to $214,600 from $207,000. The two enterprises' government charter requires them to base their single-family mortgage purchase limits on an index of home prices put out by the Federal Housing Finance Board. The value of that index went down in 1993 and 1994. This year, the index rose 8%, which reflects the steady increase in the value of U.S.

Before its portfolio of bad loans helped trigger the housing crisis, mortgage giant Freddie Mac was the focus of a major accounting scandal that led to a management shake-up, huge fines and scalding condemnation of passive directors. One of those board members was Rahm Emanuel, now chief of staff to President Obama. Emanuel earned at least $320,000 for his 14-month stint at Freddie Mac.

The regulator who oversees national banks is protesting an agreement by Fannie Mae and Freddie Mac to buy mortgages only when lenders used outside home appraisers. John Dugan, the U.S. comptroller of the currency, said the accord that the two government-sponsored mortgage finance giants negotiated with New York Atty. Gen. Andrew Cuomo and their federal regulator was illegal, could hurt the home-loan industry and should be withdrawn.

Fresh concerns about the troubled housing and mortgage markets were triggered Thursday by speculation that the government would be forced to bail out Fannie Mae and Freddie Mac, the twin pillars of the home loan industry. Analysts worry that the mortgage giants won't be able to raise enough money from investors to cover rising losses from loan defaults. Those doubts have ramped up a sell-off by investors, sending shares of both companies to 17-year lows.

Acting to prevent a severe disruption of the mortgage market, the federal government stepped in Sunday with plans for a sweeping aid package designed to bolster confidence in battered home-loan giants Fannie Mae and Freddie Mac. The Bush administration said it would ask Congress to authorize the Treasury Department to lend Fannie and Freddie more money than current limits permit and buy stock in the two companies.

Treasury Secretary Henry M. Paulson, increasingly the point man for the Bush administration as it struggles to steady the economy, made an emergency trip to Capitol Hill on Wednesday seeking to quell a rebellion among conservatives over the plan to shore up struggling mortgage giants Fannie Mae and Freddie Mac.

John McCain has been winning over skeptical conservatives by embracing tax cuts while promising a new era of fiscal discipline if he wins the White House. But his fragile relationship with the Republican base will be tested again as he decides whether to support controversial plans for addressing the mortgage crisis.

Freddie Mac is asking for an initial injection of $13.8 billion in government aid after posting a massive quarterly loss Friday. The mortgage firm is making the first request to tap the $200 billion promised by the Treasury Department to keep it and sibling company Fannie Mae afloat after the two were seized by federal regulators in September. Freddie Mac said it expected to receive the money by Nov. 29. The McLean, Va.-based company posted a loss of $25.3 billion, or $19.

The chief executives at mortgage finance companies Fannie Mae and Freddie Mac ignored warnings that they were taking on too many risky loans years before the housing market plunged, according to documents released Tuesday by a House of Representatives committee.