Predatory Lending

Freddie To Tighten Belt on Subprime Loan Purchases 

Freddie Mac (NYSE:FRE) today announced that it will cease buying subprime mortgages that have a high likelihood of excessive payment shock and possible foreclosure. The GSE said it will only buy subprime adjustable-rate mortgages — and mortgage-related securities backed by these subprime loans — that qualify borrowers at the fully-indexed and fully-amortizing rate. Freddie also said it will limit the use of low-documentation underwriting for these types of mortgages, in an effort to help ensure that future borrowers have the income necessary to afford their homes. In addition, the GSE said it will strongly recommend that mortgage lenders collect escrow accounts for borrowers’ taxes and insurance payments.