Mortgage finance giant Freddie Mac has decided to buy as much as $20 billion in mortgages to help borrowers with high-priced loans stay on their survival course. Freddie Mac, the US mortgage finance provider, said that it would offer backing for up to $20 billion in mortgages to aid distressed subprime borrowers. Richard Syron, chief executive of the government-chartered group, has further said that the offer was aimed at assisting borrowers who would normally qualify for fixed-rate loans.
The offer also substantiates the fact that it would ensure lenders that there will be financing available if they move borrowers from high-risk subprime loans to traditional mortgages. The announcement was made after federal regulators urged lenders to work with anxious borrowers unable to meet payments on high-risk mortgages to help them keep their homes.
The new products to be offered by Freddie Mac are expected to be available by midsummer. The product will include fixed-rate mortgages and adjustable-rate mortgages with longer fixed-rate periods before retuning to higher rates. Syron further added that some particulars of the new mortgage purchase program still must be worked out with the company’s federal regulator.
The announcement has also mounted pressure on banks to offer distressed homeowners substitutes to foreclosure. In recent times, defaults on home loans to subprime borrowers have increased considerably revealing a loosening of lending standards in the past two years and compelling more than 20 small subprime lenders to close their business.
Freddie Mac’s decision came after its core rival Fannie Mae introduced earlier this week a similar campaign, which plans to allow lenders to qualify more subprime borrowers for refinancing. Moreover, the main thrust of the recent announcement is that if more disturbed borrowers could refinance their homes, they would not lose them, and if investors like Freddie Mac are prepared to buy these loans, lenders would be keen to make them.
