GO
Loading...

Enter multiple symbols separated by commas

Freddie Mac Toughens Standards For Buying Subprime Mortgages

Freddie Mac , one of the nation's biggest buyers of subprime mortgages, is announcing dramatically tougher standards for purchasing these loans in the secondary market, according to CNBC's Steve Liesman.

The standards appear to go beyond existing guidance from federal bank regulators, Liesman said.

Under the new standards, Freddie Mac will only buy subprime mortgages where the borrower has been qualified at the higher interest rates to which these loans eventually adjust.

In other words: if the initial rate is 5%, but the loan eventually adjusts to 10%, borrowers must now show the ability to pay the loan at the higher 10% rate for Freddie Mac to buy the loan.

In an exclusive appearance on CNBC, Richard Syron, Chairman and CEO of Freddie Mac, said he was taking the action now because borrowers have been squeezed by higher interest rates and falling housing prices.

"At a time when housing prices were going up 5% a year, and it went up 10% in two years, if someone paid 5% to get a mortgage, they were still ahead," said Syron. "But in the last few months, housing prices have softened."

Iin addition, Freddie Mac will limit the use of low-documentation loans where borrowers cannot verify their income.

The new standards won't take effect until Sept. 1, 2007 because Freddie Mac wanted a transition period.

"We don't want people that have things in the pipeline now or may be in a position that they have to refinance in the very short run to be squeezed out of the market," said Syron.

Freddie Mac has financed about 50 million homes. Syron says the company is developing new, more consumer-friendly subprime products.

Contact U.S. News

  • CNBC NEWSLETTERS

    Get the best of CNBC in your inbox

    Please choose a subscription

    Please enter a valid email address
    To learn more about how we use your information,
    please read our Privacy Policy.

Don't Miss

  • Why women cheat?

    Is cheating bad? Why do women cheat? The founder and CEO of affair website Ashley Madison tells all, including why he has his eye on China.

  • Judge's gavel

    The Financial Industry Regulatory Authority disciplined several financial services firms and individuals in May 2015.

  • Fine wines & finance

    Why you should try something a little different on date night. Bring the romance and champagne, and a calculator too. Every once in a while have a date to talk money and finance, and keep an important part of your relationship on track. Reporter Sharon Epperson talks to a couple who does just that.

U.S. Video

  • Cramer: Here's a sign the market could rally

    Wall Street's been soaking in red, but "Mad Money" host Jim Cramer has one signal to watch for that could point to another run.

  • Burger war maneuvers

    Cramer looks at the number of company's selling burgers and tries to determine the quality names, as well as those to avoid.

  • Cramer: What's driving defense?

    Cramer says that even though President Obama has made it clear the US can no longer be the world's policeman, the country can become the world's arms dealer. Profiting from defense spending.