Federal National Mortgage Association

The heads of Fannie Mae and Freddie Mac said Tuesday that they were developing new types of loans to help borrowers with high-risk mortgages keep their homes at a time of rising foreclosures. A key federal regulator also urged lenders to step in now and extend flexible terms to struggling homeowners.

Money has started to be distributed to shareholders hurt by an alleged accounting fraud at Fannie Mae under a $400-million settlement signed last year with the mortgage giant, federal regulators said Monday. The Securities and Exchange Commission said the full amount that will go to shareholders, $357 million, is expected to be distributed by October. It is one of the largest such distributions in recent years, the result of the Sarbanes-Oxley law that followed the 2002 corporate scandals.

Shares of Fannie Mae and Freddie Mac, the two largest U.S. home-loan companies, rose on speculation that the companies' regulator may lift a cap on the amount of home loan assets they can own, helping to ease a funding crunch in the mortgage market. Fannie Mae shares jumped $5.87, or 10%, to $62.50. Freddie Mac rose $4.30, or 7.7%, to $60. Falling home prices and a surge in payment defaults have scared investors away from mortgage debt, including bonds and other securities backed by home loans.

Freddie Mac said Thursday that its huge mortgage holdings grew in July at the fastest pace in 16 months as the company took advantage of a faltering housing market to scoop up cheaper mortgage-backed bonds. In a bid to rescue the ailing housing and mortgage markets, lawmakers are pushing to raise the amount of home loans that can be held by Freddie Mac and its bigger rival Fannie Mae. The two government-sponsored firms are the largest U.S. home loan-funding companies.

Fannie Mae and Freddie Mac, the biggest sources of home financing, can buy $20 billion more in sub-prime mortgages under rules unveiled Wednesday to help revive a market crippled by tighter lending standards. The Office of Federal Housing Enterprise Oversight, the mortgage finance companies' federal regulator, agreed to relax restrictions on their investment holdings, although it did not eliminate existing caps on those loan portfolios.

The top two U.S. economic policymakers told a House panel on Thursday that allowing the biggest home finance companies to buy larger loans could ease mortgage market strains but the move should be coupled with tighter regulation of the firms. Federal Reserve Chairman Ben S. Bernanke and Treasury Secretary Henry M. Paulson Jr.

The federal regulator who oversees Fannie Mae and Freddie Mac accused New York's attorney general of overstating risks the mortgage finance companies face from faulty home appraisals. James B. Lockhart, director of the Office of Federal Housing Enterprise Oversight, sent a letter to Atty. Gen. Andrew Cuomo a day after he subpoenaed government-sponsored Fannie and Freddie in a probe of inflated appraisals.

Fannie Mae, the biggest source of money for U.S. home loans, said Friday that its third-quarter loss more than doubled to $1.39 billion as a deepening housing slump increased mortgage delinquencies. The net loss was caused by a $2.24-billion decline in the value of derivative contracts and $1.2 billion in credit losses among the $2.7 trillion of mortgage assets Fannie Mae owns or guarantees, the Washington-based company said in a Securities and Exchange Commission filing.

Government-sponsored mortgage finance giants Fannie Mae and Freddie Mac are introducing or raising fees on certain mortgages they buy to reflect their higher risk of default. Freddie Mac is primarily setting new fees for mortgages made to people who borrow more than 70% of their property's value and have credit scores below 680. The new charges range from 0.75% to 2% depending on credit scores, according to a bulletin by the company. The changes take effect March 1.

Here's a look at Freddie Mac and Fannie Mae, publicly traded mortgage finance companies created by the federal government. What is Freddie Mac? It is the common name for the Federal Home Loan Mortgage Corp., based in McLean, Va. What is Fannie Mae? It is the common name for the Federal National Mortgage Assn., based in Washington. What do they do? They buy mortgages from banks, savings and loans and other mortgage lenders.