Freddie Mac toughens subprime lending |
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Tue, 27 Feb 2007 15:14
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MCLEAN, Va. (AP) - Government-backed mortgage lender Freddie Mac said Tuesday that in the wake of a rapidly deteriorating subprime lending market, it will no longer buy high-risk subprime mortgages that have a high probability of foreclosure.The company also said it will implement stricter subprime lending standards, including a recommendation that lenders collect escrow accounts for borrowers' taxes and insurance payments; and will impose limits on low-documentation loans in order to ensure borrowers can afford to pay for their homes.Declining home sales and rising interest rates in the U.S. have made it harder for many Americans to repay their mortgages, leading to more defaults and trouble in the sub-prime lending sector.In addition, Freddie Mac said Tuesday it will roll out fixed-rate and hybrid ARM (adjustable rate mortgage) products for subprime borrowers that may carry reduced adjustable rate margins, longer fixed-rate terms and longer reset periods.An ARM mortgage is considered a higher-risk loan since it typically draws borrowers in with a low-rate, or 'teaser' rate, but after a set period of time, the interest rate can rise substantially.Copyright 2007 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
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Subprime mortgage fix will take time 