Fannie Mae (FNM) and Freddie Mac (FRE) won't need congressional approval to assist with an Obama administration initiative to refinance millions of borrowers who owe more than 80% of the value of their homes, the mortgage lenders' regulator said Friday.

Such assistance "would be a proper exercise of their existing authorities," the Federal Housing Finance Agency said in a statement.

The charters for Fannie and Freddie expressly prohibit them from guaranteeing or buying mortgages with loan-to-value ratios above 80% unless the borrower has mortgage insurance or the loan originator retains 10% of the risk.

But the Obama housing plan contemplates allowing borrowers with mortgages above the 80% loan-to-value threshold to refinance into another loan backed by Fannie or Freddie without purchasing mortgage insurance.

In a letter to a private-mortgage insurance industry executive, FHFA Director James B. Lockhart argued that the program would be permissible under the each firm's government charter because it doesn't increase their risk.

"In fact, credit risk would be reduced because, after the refinance, the borrower would have a lower monthly payment and/or a more stable mortgage payment," Lockhart wrote in the letter to Mortgage Insurance Companies of America Executive Vice President Suzanne Hutchinson. The letter was released by FHFA.

The administration's goal is to allow homeowners who have seen their home value plummet to take advantage of low mortgage rates without paying mortgage insurance premiums.

Mortgages with loan-to-value ratios of up to 105% would be eligible under the program, which the administration estimates would help 4 million to 5 million people to refinance. -Jessica Holzer, Dow Jones Newswires; 202-862-9228; jessica.holzer@dowjones.com

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