Fannie Mae scraps higher down-payment requirements

Congress created Fannie and Freddie to pump money into the home-mortgage market by buying home loans from banks and other lenders and bundling them into securities for sale on Wall Street. Together they hold or guarantee about $5.3 trillion in home-mortgage debt.

Their formidable size helps them support the mortgage market in times of trouble. But critics fear that these troubled times are too much for the companies to handle the losses, making a federal bailout inevitable.

"These guys are real close to being part of the problem, rather than part of the solution," said Thomas Stanton, a fellow at Johns Hopkins University's Center for the Study of American Government.

While the Treasury Department isn't obligated to assist Fannie or Freddie in a financial emergency, there is a perception notion on Wall Street that the government would bail them out if there is a collapse. Critics say the government's implicit backing allows the companies to take on far more debt than a bank.

James Lockhart, director of the federal Office of Housing Enterprise Oversight, said in a speech Friday the companies' high level of debt relative to assets "could pose significant risk to taxpayers ... financial institutions and other investors."

More evidence of their increased vulnerability, Lockhart said, are three straight quarters of losses for both, totaling nearly $11 billion.

Fannie had been under intense pressure from real estate agents, homebuilders and consumer advocates to relax what they saw as rigid policies that shut out borrowers with good credit.

"From the time it was announced, we've been asking them to reconsider," said Jerry Howard, president of the National Association of Home Builders, said in an interview.

Mortgage brokers welcomed the news. Alan Rosenbaum, chief executive of mortgage banker and broker GuardHill Financial Corp. in New York, said the change "is probably the first step in turning things around" as the mortgage industry has tightened its lending practices too much, leaving many borrowers out in the cold.

While the change is positive, Karen Cooper, a mortgage broker and owner of Quality Home Loans in Ashland, Ore., said borrowers face numerous other obstacles,