Question:

Freddie Mac banned subprime home loan programs - is that true?

Answer:

Yes. In the end of Feb 2007 Freddie Mac announced home loan programs they no longer support - these are unaffordable subprime adjustable rate mortgage loans pushing homeowners into foreclosure.

Freddie Mac and Subprime Home Loans

Since then, Freddie Mac only buys ARM home loans who qualify borrowers under the fully indexed rate (FIR). This will discourage lenders from selling subprime loans that borrowers don't qualify for since they won't be able to sell those loans on the secondary market.

Also, Freddie Mac have announced their decision not to buy low doc underwritten high risk subprime loans. Pretty much the same way, Freddie Mac will not be buying loans with borrowers underwritten under principal and interest payments only. Lenders are advised to escrow property taxes and insurance for those loans to be able to sell them on the secondary market.

Freddie Mac is the first big investor to have a say on dangerous subprime home loans.

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