Freddie Mac Bans Unaffordable Subprime Home Loans

CSR Wire reports:

In recent years, lenders making higher-risk, higher-cost "subprime" home loans have flooded the market with dangerous hybrid mortgages, often approved without considering whether the borrower could afford the loan. Today Freddie Mac took a major step for responsible lending by announcing it will no longer buy common types of subprime mortgages that have been pushing millions of homeowners into foreclosure. The Center for Responsible Lending joins AARP, Consumer Federation of America, Leadership Conference on Civil Rights, NAACP, National Fair Housing Alliance, and Rainbow/Push in commending Freddie Mac for taking this significant action to discourage unsustainable home loans.

As one key part of its initiative, Freddie Mac will only accept subprime adjustable rate mortgages that qualify borrowers at the "fully-indexed and fully-amortizing rate," which will discourage lenders from approving loans at start rates that can rise sharply when scheduled rate increases become effective within two or three years.

It appears "easy money" could be on the way out.It will be interesting to see Freddie's earnings the next couple of quarters.