Freddie Mac to Toughen Bad Credit Mortgage Standards

Government-backed mortgage finance company Freddie Mac will no longer buy subprime (or bad credit mortgages) that have a very “high likelihood” of payment shock and foreclosure, the company announced Tuesday.

This news follows yesterday’s announcement by Fannie Mae that it’s holdings have contracted in the month of January as the nation’s lending environment continues to shift - sometimes radically.

According to Freddie Mac’s chief executive, the company’s responsibility is to promote home ownership and the current methodology isn’t sufficient.

“Freddie Mac has a public mission to promote home ownership and some of these [mortgage] products that fueled the five-year housing boom aren’t going to work going forward,” Richard Syron, Freddie Mac’s CEO, said on CNBC television.

Freddie Mac will invest only in home loans that assume a borrower can make the highest possible mortgage payments and will introduce new products to help troubled mortgage borrowers.

The nation’s foreclosure rate continues to rise as more borrowers of bad credit home loan products start to experience problems making payments.

The company will limit the use of low-documentation or no doc loans to “help ensure that future borrowers have the income necessary to afford their homes,” the company said in a statement.

Freddie Mac is “developing new, more consumer-friendly subprime lending products that we will be taking into our portfolio… (and) hopefully rescue some of these people,” Syron said.

SOURCE: Reuters