Freddie Mac toughens subprime standards |
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Tue, 27 Feb 2007 15:36
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MCLEAN, Va. (AP) - Mortgage lender Freddie Mac said Tuesday that because of rapid deterioration in the subprime lending market, it will no longer buy some high-risk subprime mortgages.It will be especially watchful for 'mortgages that have a high likelihood of excessive payment shock and possible foreclosure,' the Washington, D.C.-based company said in a statement.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 it 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 United States have made it harder for many Americans to repay their mortgages, leading to more defaults. This is especially true in the subprime sector, where loans are made to borrowers who often have impaired credit.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 This material may not be published, broadcast, rewritten, or redistributed.
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Freddie Mac toughens subprime lending 