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Fannie Chief Says No More Risk with Larger Loans

During a speech held today at the Citigroup Financial Services Conference in New York, Fannie Chief Daniel Mudd addressed the proposed increase in the conforming loan limit, his company’s outlook, and the economy as a whole.

Speaking about the proposed stimulus, Mudd called it “directionally positive in terms of chipping away at the problem,” and noted that Fannie wouldn’t necessarily be taking on more risk by purchasing larger loans.

“It’s wrong to say, ‘There is a magic line between $417,000 and $418,000, one part is not risky, one part is risky,’” Mudd said. “We will follow the same risk policy, the same underwriting criteria, the same conservative philosophy.”

Mudd also noted that the current mortgage-rate environment was favorable to homeowners, and could potentially “self rescue” some of the at-risk homeowners.

“It will help existing borrowers by lowering their monthly payment,” he said. “The rate cut could thus help a cohort of homeowners to avoid default.”

While lower rates may help some, those currently underwater on their mortgage will still likely need to work out a special arrangement with their current mortgage lender to stay afloat.

Of course Mudd noted that the “vast majority of borrowers are not facing potential rate increases or payment shocks” within Fannie’s portfolio of loans.

Fannie 2008 Outlook

But he did recognize that “a lot of the trends we saw in the latter half of 2007 have rolled right into 2008,” saying it would be a “tough year” and that Fannie was “in a defensive stance with respect to capital.”

“There have been some marginally negative continuation of trends,” he said.

He said the company’s capital was now “in good shape” but expressed that there remained “extraordinary credit challenges to manage through.”

Mudd also commented on the U.S. economy as a whole, saying it “is just on the edge of a recession or a mild recession,” saying housing markets in California, Florida, and the upper Midwest were feeling it the most.

Shares of Fannie Mae were up 18 cents, or 0.55%, to $32.87 in late afternoon trading on Wall Street.

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