US regulator says Fannie, Freddie reach deal with banks that could expand mortgage lending

A federal regulator says government-controlled mortgage giants Fannie Mae and Freddie Mac have reached an agreement with major banks that could expand lending.

The head of the Federal Housing Finance Agency, which oversees Fannie and Freddie, announced the deal Monday at a conference of the Mortgage Bankers Association in Las Vegas. FHFA Director Mel Watt says the deal clarifies conditions in which banks could be required to buy back mortgages they sell to Fannie and Freddie for misrepresenting the loans' risks.

Watt says the agreement in principle will help make more mortgage credit available without harming Fannie and Freddie's finances.

He adds that it's currently hard for banks to know whether they'll have to buy back loans. That can make banks skittish about lending to borrowers with less pristine credit.