More Bad News For The Sub Prime Mortgage Market

Another sign of the trouble facing the subprime mortgage market showed itself this past Tuesday when the Federal Home Loan Mortgage Corporation ("Freddie Mac"), one of the largest buyers of home mortgages, said that it would tighten lending standards and stop buying certain kinds of risky home loans made to borrowers with weak, or subprime, credit records, according to an article in The New York Times.

The move comes as default rates are rising, mortgage loan originators are starting to go under, and investors in bonds backed by mortgages are pulling back.

The subprime mortgage market consists of "exotic" home loans that let people buy homes with little down, "rough" credit histories, and/or without verifying their incomes ("liars' loans").

The article observes that "[F]reddie’s announcement is confirmation to other investors in mortgages that a segment of the market that was once Wall Street’s darling finds itself in the doghouse."

The new, stricter standards go into effect for loans written on or after September 1, 2007.

To read more, see Freddie Mac Tightens Standards.

To read the Mortgage Bankers Association response to Freddie Mac's announcement of its new subprime guidelines, see MBA Questions Freddie Mac’s New Underwriting Standards for for Subprime Lending.

For other links to information on the troubled sub-prime mortgage market, see Sub Prime Mortgage Market Compared To "The Titanic".

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