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Fannie, Freddie Subprime Spree May Add to Bailout
...``We've heard a lot of people stand up and say, `Fannie and Freddie really did not promulgate the problems; they weren't big players,''' said Joshua Rosner, an analyst with Graham Fisher & Co., an independent research firm in New York. ``Actually, they were.''

The biggest suppliers of the securities to Fannie and Freddie included Countrywide Financial Corp. of Calabasas, California, as well as Irvine-California-based New Century Financial Corp. and Ameriquest Mortgage Co., lenders that either went bankrupt or were forced to sell themselves. Fannie and Freddie were the biggest buyers of loans from Countrywide, according to the company. ...

...The companies said they were urged to increase purchases of subprime debt by the Bush administration. The Department of Housing and Urban Development said in 2005 that Fannie and Freddie should increase financing for low-income areas or moderate-income regions with high minority populations to 37 percent of new business from 34 percent in 2001 through 2004. That rose to 39 percent last year.

The updated goals ``were significant enough to force them to go down the credit curve to meet them, which meant participating in some way or form in the higher-risk areas of the mortgage market,'' said David Stevens, a former head of Freddie's single- family mortgage business who now runs lenders affiliated with Long & Foster Real Estate Inc. in Fairfax, Virginia. That included ``the subprime business.'' ...

...[Countrywide]'s chief risk officer, John McMurray, told analysts in a conference call in July last year that Fannie would buy loans to borrowers with credit scores from Minneapolis-based Fair Isaac Co., known as FICOs, that would typically be considered subprime. Fannie used those loans to meet its affordable-housing goals, McMurray said.

``There is a belief by many that prime FICOs stop at 620,'' McMurray said. ``That's not the case. There are affordability programs and Fannie Mae expanded approval, as an example, that go far below 620, yet those are still considered prime.''

Borrowers were at least 60 days late on about 31 percent of the loans ...