Freddie Mac Toughens Subprime Lending Standards
Freddie Mac announced last week that it will cease buying subprime mortgages that have a high likelihood of excessive "payment shock" and possible foreclosure.
With the goal of protecting borrowers from payment shock, Freddie Mac announced that it would only buy subprime adjustable-rate mortgages (ARMs) — and mortgage-related securities backed by these subprime loans — that qualify borrowers at the fully-indexed and fully amortizing rate.
The company also said that it would limit the use of low-documentation underwriting of these types of mortgages to ensure that future borrowers have the income they need to afford their homes. In addition, Freddie Mac said that it would strongly recommend that mortgage lenders collect escrow accounts for borrowers’ taxes and insurance payments.
To avoid any market disruption, the new investment requirements will take effect with mortgages originated on or after Sept. 1, 2007.
To help lenders better serve borrowers with impaired credit, Freddie Mac said that it is also developing fixed-rate and hybrid ARM products that will provide lenders with more choices to offer subprime borrowers. For example, its new hybrid ARMs will limit payment shock by offering reduced adjustable rate margins; longer fixed-rate terms; and longer reset periods.
“Freddie Mac has long played a leading role in combating predatory lending and putting families into homes they can afford and keep,” said Richard Syron, the company’s chairman and CEO. “The steps we are taking today will provide more protection to consumers and enhance the level of underwriting standards in the market.”
Is the Housing Correction Over? Attend Construction Forecast Conference
Will housing demand outweigh affordability hurdles, inventory overhangs and the retreat of investors? Where are home prices headed?
Get the answer to these and other questions at the Construction Forecast Conference — Spring 2007 on April 26 in Washington, D.C.
Panels of nationally recognized experts will discuss economic trends, government policies, developments in the housing industry and the results from NAHB's recent surveys at the day-long conference.
For more information and to register, click here.
The conference is also available via Webcast. For Webcast information, visit www.nahb.org/cfcwebcast.
Want to Know the Housing Starts Through 2015?
Find out in HousingEconomics.com’s Long-Term Forecast.
HousingEconomics.com includes downloadable Excel tables featuring the housing starts forecast, GDP, demographics and more.
To learn more, visit www.housingeconomics.com.
NAHB Kit Gives Builders Back-to-Basics Tips in Cooling Market
With the current cooling of the nation’s housing market expected to persist into the middle of the year, NAHB has developed a comprehensive online toolkit geared to providing association members with information that will help them prosper in today’s changing business environment.
To access the “Back to Basics” toolkit, you must be an NAHB member and have a login to www.nahb.org. To create a login, go to www.nahb.org/login or click on the log-in button on the main menu bar.
For assistance, call the NAHB Member Service Center at 800-368-5242.