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Mortgage Giant Freddie Mac to Tighten Standards

(EMAILWIRE.COM, March 08, 2007 ) SACRAMENTO, CA – The Federal Home Loan Mortgage Corporation (Freddie Mac) of McLean, Virginia announced recently that it would no longer purchase high-risk home mortgages to sell to investors. This action surprised many market watchers, and serves as a stronger wake-up call to mortgage lenders across the country.Mortgage lenders across the United States have been troubled since the end of the nation’s recent real estate boom which ended roughly in the middle of 2005 by falling home values and increasing interest rates. Especially hard hit are the so-called subprime lenders, those who specialize in lending to people with impaired credit or other financial problems.Freddie Mac, the number two purchaser of home loans in the U.S. intends to change its policies in order to create more predictability in the American housing market. First, the company will only purchase subprime adjustable-rate mortgages and securities backed by these loans when the original borrowers are qualified for the higher payments that will result after an initial low teaser-rate period ends.Second, the company will tighten standards by limiting the low documentation loans called ‘stated income’ loans which have recently become extremely popular. As a final measure, Freddie Mac will encourage lenders to collect tax and insurance payments from their borrowers in special escrow accounts.Freddie Mac said that its changes would not be put into full effect until September 1, 2007 in order to give the markets a chance to adjust.Patrick McGilvray, J.D., President of, commented, “it’s about time that one of the dominant players in the mortgage-backed securities industry came to its senses. When the United States Treasury serves as the rich uncle for Freddie Mac who could bail them out in the event that their business model resulted in serious performance problems it creates a sense of overconfidence. Sadly, it’s the taxpayers who would have to pay the tab if Freddie Mac’s enabling of subprime lenders shoddy business practices resulted in tragedy.”The Chairman and CEO of Freddie Mac, Richard Syron, said, “Freddie Mac has long played a leading role in combating predatory lending and putting families into homes they can afford and keep. The steps we are taking today will provide more protection to consumers and enhance the level of underwriting standards in the market.”Freddie Mac was chartered by Federal legislation in 1970, and is owned by stockholders. Its core mission is to support homeownership which it does by buying residential mortgages and mortgage-related securities. It finances these by issuing its own mortgage-related securities and debt instruments.Contact:Patrick McGilvray, J.D. Tel: 916-920-3278 Patrick@thehomebuyingcenter.com

Patrick McGilvray, J.D.
Patrick McGilvray, J.D.


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