Freddie’s Foreclosure Plan Hits Roadblock

Freddie Mac is engaged in a tug of war with both its regulator and Wall Street over a plan to provide loans to investors that are buying homes in foreclosure to rent them out.

The government-backed mortgage giant is pushing to finance such investors to help jump-start a housing recovery. But the Federal Housing Finance Agency has put those plans on hold, concerned Freddie’s cheap debt would make it difficult for banks to compete for the growing number of buyers of foreclosed homes, people familiar with the proposed financing said. The FHFA also worries Freddie’s involvement would deepen the government’s role in the nation’s real-estate economy.

Banks want to keep Freddie out of the financing market, and have told the FHFA that they can provide ample loans to investors. Bankers say an FHFA decision to sideline Freddie could drive investors toward their loans and other services, generating fees.

“If [Freddie] came along and offered funding, and it was on better terms, in all likelihood, the funding business would end up in their hands,” says Steve Abrahams, a mortgage analyst at Deutsche Bank. “The odds of it crowding out private participation are pretty high.”

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