Freddie Mac's move to limit its exposure to certain forms of subprime mortgage products, as reported here yesterday, is generating a wide range of response from within and without the mortgage banking industry -- as well as fueling unconfirmed rumors that Wall Street firms may also be moving to limit their underwriting exposure to the subprime credit sector. Freddie Mac yesterday said it will only accept subprime adjustable rate mortgages that qualify borrowers at the fully-indexed and fully-amortizing rate, and will limit the use of low-documentation underwriting on high-risk subprime loans. The agency also said it will push for subprime lenders and servicers to escrow for taxes and insurance. Consumer advocates have largely lauded the decision, saying it represents an important first step towards ensuring the future stability of housing markets across the United States. â€œFreddie Mac's announcement provides a major step toward ensuring that homeowners receive loans that they will be able to repay," said Martin Eakes, CEO at the Center for Responsible Lending, a consumer advocacy organization that recently called on government regulators to tighten up subprime lending guidance. "With home foreclosures rising in every region of the country, Freddie Mac's action today could not be more timely. As a major investor in subprime home loan securities, Freddie Mac's leadership in establishing risk and ethical standards is extremely important and much appreciated by homeowners and civic leaders all across the nation." "Older homeowners on fixed incomes are often marketed predatory loan products that they simply cannot repay," said David P. Sloane, senior managing director at the AARP. "When low teaser rates expire and skyrocketing mortgage payments kick in, the older homeowner faces catastrophe. Freddie Mac's action is a critical step towards protecting vulnerable homeowners.â€? Consumer organizations also urged other banking institutions beyond Freddie to adopt a similar stance on subprime loan originations and purchases. â€œOur communities have the most to gain from homeownership, but we also lose the most when lenders aggressively steer families into unaffordable loans," said Hilary Shelton, director of the Washington office of the NAACP. "We urge other lenders and leaders in the mortgage market to show an equal commitment to prudent and sustainable home loans.â€? A 'limiting' move? In stark contrast to the reactions of numerous consumer groups throughout the country, the Mortgage Bankers Association issued a statement yesterday expressing fears that the move would further constrain credit to subprime borrowers. â€œToday's announcement by Freddie Mac that it will only purchase subprime mortgages â€“ and mortgage-related securities backed by these subprime loans â€“ that qualify borrowers at the fully-indexed rate will limit the product options and the access to credit for those individuals most in need, many of whom are first time, underserved or minority homebuyers," said MBA chairman John Robbins. "The mortgage products that these new standards target are important financial instruments, crucial to helping borrowers get into homes and repair their credit. Regulation that further limits consumer choice is unwarranted.â€? Industry rumors have surfaced in recent days that Wall Street firms and large banks, too, are taking similar steps to reign in their policies on subprime credit, although Housing Wire has not obtained any further details from official sources regarding a potential shift in credit policy at any of the large Wall Street banks. "It's simple market economics," said one source on the condition of anonymity. "No investor wants to touch a HLTV subprime loan right now, so most issuers aren't going to underwrite the product anymore. No buyer, no product." Unconfirmed sources have provided HW with copies of memos allegedly detailing changes to loan underwriting policies at both Wells Fargo and Merrill Lynch-owned First Franklin slated to go into effect March 1, although spokespersons for both companies have said they cannot comment on any of the potential changes suggested within the memos.