Freddie to Stop Buying, Securitizing Interest-Only Loans

Freddie Mac (FRE) will stop purchasing and securitizing interest only mortgages on Sept. 1, 2010, the government-sponsored enterprise announced Friday. While additional information won’t come until Freddie issues an upcoming Single-Family Seller/Servicer Guide bulletin, the new policy applies to Freddie Mac Initial Interest fixed-rate and adjustable-rate mortgages and other similar loan products. Interest only mortgages provide for interest-only payments for a specified period of time beginning with the first monthly payment after the note date, and principal and interest payments on a fully amortizing basis for the remainder of the mortgage term. Earlier this week, Freddie Mac said it lost $7.8bn in Q409, capping off the GSE’s 2009 losses at $25.7bn. While significant, by way of comparison the losses are around half of Freddie’s $50.1bn loss in 2008. Write to Austin Kilgore. The author held no relevant investments.

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