Helping Improve Subprime Lending Practices
| Articles & Commentary |
|
Read more articles |
|
Since 2000, Freddie Mac has taken unilateral, voluntary leadership positions that have helped improve subprime market practices.
These include our bans on:
- Mortgages originated with single-premium credit insurance.
- Mortgages with prepayment penalty terms greater than three years.
- High-rate or high-fee mortgages covered by the Home Ownership and Equity Protection Act of 1994 (HOEPA).
- Mortgages that contain arbitration contracts.
In addition, Freddie Mac does not do business with financial institutions that engage in predatory lending practices. We insist that lenders provide complete credit information about borrowers to all the credit bureaus and reporting agencies.
These requirements apply to all our mortgage purchase and investment activities.
New Subprime Lending Standards
Beginning in September 2007, Freddie Mac is toughening our subprime lending standards. We are:
- Investing only in short-term subprime hybrid adjustable-rate mortgages (ARMs) – and mortgage-related securities backed by such subprime ARMs – that qualify borrowers at the fully-indexed and fully-amortizing rate.
- Limiting the use of low-documentation underwriting for such subprime ARMs backing the asset-backed securities that we purchase to help ensure that future borrowers have the income necessary to afford their homes.
- Requiring that loans be underwritten to include taxes and insurance and strongly recommending that the subprime industry collect escrows for taxes and insurance, as is the norm in the prime sector.
Read more:
- Freddie Mac CEO Richard F. Syron Testifies [PDF 231K] Before House Financial Services Committee Hearing, "Legislative and Regulatory Options for Mitigating Mortgage Foreclosure," September 20, 2007
- Freddie Mac Responds to the Subprime Crisis [PDF 544K] A downloadable 2-page summary of Freddie Mac's efforts to date to meet the challenges of the current turmoil in the subprime mortgage market.
- Freddie Mac applies federal financial institution regulatory agencies' Statement on Subprime Mortgage Lending to underwriting and purchase requirements for short-term subprime hybrid ARMs.
- Freddie Mac applies Interagency Guidance on Nontraditional Mortgage Product Risks to underwriting requirements for nontraditional mortgages that include Initial InterestSM mortgages; other ARMs and fixed-rate mortgages with an interest-only component; and ARMS with the potential for negative amortization.
- Freddie Mac CEO Discusses Subprime Market Disruption
Richard F. Syron discusses the disruption in the subprime market and what can be done to contain the crisis and maintain liquidity and stability in the broader mortgage market. Watch the interview on FOX News.
- Transitioning the Subprime Market into a Stable Source of Financing
Helping the subprime market transition into a more viable, stable source of financing is a desirable policy objective, said Freddie Mac SVP Donald J. Bisenius at a subprime lending hearing before the New York State Assembly. Read the full testimony.
- Freddie Mac, Industry Members and Consumer Representatives Support Senator Chris Dodd's New Principles to Preserve Homeownership for Subprime Borrowers
- CEO Richard Syron Analyzes Housing Affordability, Describes Special Role GSEs Can Play in Subprime Solution
- Congressional Testimony
[PDF 58K]
by Syron before the House Financial Services Committee on April 17, 2007.
More and Better Choices for Lenders and Subprime Borrowers
Freddie Mac is also developing more consumer-friendly subprime products, which we call SafeStep® mortgages, to provide stable financing alternatives going forward. These offerings, available initially through a limited group of Freddie Mac customers, will include fixed-rate mortgages and ARMs with reduced margins and longer fixed-rate periods.
We are also offering needed support to the Alt-A market by providing a 90-day forward purchase commitment, which allows borrowers to "lock in" an attractive rate.
Read more:
|
