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Last Updated: Tuesday, 17 April 2007, 20:41 GMT 21:41 UK
Effort to ease US mortgage woes
US houses
The general US housing market has seen a slowdown
US mortgage giants Fannie Mae and Freddie Mac are developing new types of loans to help borrowers with high-risk mortgages avoid losing their homes.

The move comes amid turmoil in the sub-prime lending market, which offers higher priced loans to people with low wages or poor credit histories.

With US home repossessions hitting a record high last year, the situation has caused concern on Wall Street.

The two firms are looking at "more consumer-friendly sub-prime products".

'Challenging task'

Sub-prime mortgages are typically variable rate, starting with a low interest rate which can then rise sharply.

Fannie Mae and Freddie Mac said they were aiming to introduce new 30-year, and possibly 40-year, fixed rate deals, with the chance for existing sub-prime customers to switch.

Their announcement came after a high-level group of mortgage industry executives, federal officials and bankers met to discuss the difficulty in the sub-prime market.

They have agreed on a goal of keeping deserving borrowers with high-risk mortgages in their homes.

"It is going to be a very challenging task...we've not going to be able to save everybody," said Sheila Bair, chairman of the Federal Deposit Insurance Corporation.

The downturn in the sub-prime market has led to a number of specialist firms in the sector also falling into financial difficulty.

New Century Financial, one of the largest sub-prime lenders in the US, filed for Chapter 11 bankruptcy protection earlier this month.

Wall Street is concerned that the weakness in the sub-prime market, which is also reflected in a general slump in the US housing market, could spread over into the wider economy.

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14 Mar 07 |  Business

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