*****MARKET NEWS*****

Fannie Mae tightens loan restrictions By Bloomberg News / March 26, 2008 NEW YORK - Fannie Mae, the largest provider of money for US home loans, tightened an exception to a policy reinstated last year to limit credit losses, potentially making it harder for consumers to refinance lower-cost loans. Fannie Mae will no longer allow homeowners to refinance loans it either owns or has packaged into bonds at typical loan-to-value ratios in areas with falling home prices if they're going to use proceeds to pay off a second mortgage, according to a memo to lenders dated Monday and posted on its website. The government-chartered company, which owns or guarantees almost $3 trillion of US mortgages, four months ago reinstated a policy that requires lenders to boost by 5 percentage points the required size of down payments or borrower equity on new lending before Fannie Mae will accept the debt, part of a series of changes to standards at the company and rival Freddie Mac amid the largest drop in US home prices on record. Fannie Mae also issued other "changes and clarifications" of criteria related to the declining market policy on Monday. A spokesman, didn't immediately return a phone message seeking comment. Borrowers also must receive no cash from transactions and use any equity tapped only to pay off a first mortgage, prepaid interest, and closing costs to quality for "limited" cash-out refinancings with typical loan-to-value ratios in markets where home prices are falling, the memo said. Any second mortgages, also known as home equity loans, must be "resubordinated," it said. Some banks, including Cleveland-based National City Corp., that own home-equity loans have been telling clients they must pay them off to refinance. Fannie Mae, which posted a record $3.55 billion fourth-quarter loss, also this month said it would not allow cash-out refinancings among the mortgages larger than $417,000 that Congress this year temporarily allowed it and Freddie Mac to finance in certain areas. Home prices in 20 US metropolitan areas fell in January the most on record, a private survey showed yesterday. The S&P/Case-Shiller home price index dropped 10.7 percent from January 2007, after a 9 percent decrease in December. The gauge has fallen for 13 consecutive months. Congress created Fannie Mae and Freddie Mac to expand homeownership by increasing mortgage financing, and to provide market stability. The companies make money by holding mortgage assets and on guarantees of mortgage-backed securities they create out of loans from primary lenders.