Freddie Mac changes approach in buying subprime mortgages

Bank News, April, 2007 by Anonymous

Freddie Mac has announced that it will cease buying subprime mortgages that have a high likelihood of excessive payment shock and possible foreclosure. First, Freddie Mac said it will only buy subprime adjustable-rate mortgages - and mortgage-related securities backed by these subprime loans - that qualify borrowers at the fully-indexed and fully-amortizing rate. Officials said the goal is to protect future borrowers from the payment shock that could occur when their adjustable-rate mortgages increase.

Second, the company will limit the use of low-documentation underwriting for these types of mortgages to help ensure that future borrowers have the income necessary to afford their homes. In addition, Freddie Mac will strongly recommend that mortgage lenders collect escrow...

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