Magazine article American Banker

Why Freddie Is Looking Hard at Old Loans

Magazine article American Banker

Why Freddie Is Looking Hard at Old Loans

Article excerpt

People with mortgages more than a year old may have credit or property-value problems that have prevented them from refinancing.

That's the reasoning behind a step Freddie Mac has taken to protect itself against getting burned in buying such older loans.

Sea Change in Policy

The Federal Home Loan Mortgage Corp. announced recently that beginning Dec. 1, it would purchase mortgages originated more than 12 months ago only on a negotiated basis. Such mortgages can be subject to loan-by-loan review.

A more cautious approach to seasoned loans represents a sea change in the way that product is viewed, according to secondary-market executives. "In the past, seasoning was a cure-all--the loan developed a payment history, and rising housing values increased equity," said Tim Bombard of Boston Five Federal Savings Bank.

Winding Down

Now Freddie Mac believes "these factors are not as reliable as they once were," according to a recent bulletin sent to its sellers and servicers. It is concerned that stagnant property values and an uncertain job market may have left many borrowers unable to refinance. In other words, the mortgagee may have lost both equity and income.

Purchases of seasoned loans accounted for 2% to 3% of Freddie Mac's loan purchases so far this year, according to Michael Stamper, executive vice president at Freddie.

The new policy will mostly affect lenders such as commercial banks and thrifts that initially make or buy mortgages for their own portfolio but may decide to adjust their positions later. …

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