Freddie Mac announces $20 billion sub-prime commitmentMortgagePress.comfixed-rate, hybrid adjustable-rate mortgage, sub-prime issue
Freddie Mac has
announced that it will purchase $20 billion in fixed-rate and
hybrid adjustable-rate mortgage (ARM) products that will provide
lenders with more choices to offer sub-prime borrowers. The
products, currently under development by the company and slated to
be introduced by mid-summer, will limit payment shock by offering
reduced adjustable-rate margins, longer fixed-rate terms and longer
reset periods.
The $20 billion commitment was made on April 18 by Freddie Mac
Chairman and CEO Richard F. Syron at the Homeownership Preservation
Summit, which was convened by Sen. Christopher J. Dodd and attended
by Sen. Richard Shelby.
"We appreciate Sen. Dodd's ongoing leadership in addressing the
sub-prime issue. The problems facing borrowers in this segment of
the market are of deep concern to Freddie Mac," said Syron. "Two
months ago, we announced several pro-borrower steps, including the
enhanced underwriting standards and more consumer-friendly mortgage
products for borrowers with impaired credit. Today, we're again
ramping up our commitment through this $20 billion pledge to assist
families caught up in the sub-prime crisis and to make the market
more stable and transparent for all borrowers."
The commitment follows Freddie Mac's recent announcement that it
would cease buying sub-prime mortgages that have a high likelihood
of excessive payment shock and foreclosure. Among other things, the
company will require that sub-prime ARMs - and mortgage-related
securities backed by these sub-prime loans - qualify borrowers at
the fully indexed and fully amortizing rate.
The company also will limit the use of low-documentation
products in combination with these loans, require that loans be
underwritten to include taxes and insurance, and strongly recommend
that the sub-prime industry collect escrows for taxes and
insurance, as is the norm in the prime sector.
For more information, visit www.freddiemac.com.
