Check out this Washington Post story about Freddie Mac, the country’s second largest buyer of mortgages. They’re clamping down on risky subprime loans made to consumers with poor credit who wouldn’t otherwise qualify for a mortgage.

I thought the following detail was interesting, since payments on these risky loans often ratchet up after a few years and surprise borrowers who could barely afford the introductory payments:

Freddie will buy securities backed by these types of loans only if the borrowers qualify for the highest rate the loan can have. For instance, if the teaser rate is 2 percent but eventually kicks up to 8 percent, the borrower must qualify for the 8 percent, said Brad German, a Freddie spokesman.

In a press release today commending Freddie Mac’s decision, the CEO of the Center for Responsible Lending, Martin Eakes, included this statement:

… with home foreclosures rising in every region of the country, Freddie Mac’s action today could not be more timely.

I spoke with Paul Leonard from the Center for Responsible Lending for the story I wrote about these subprime loans last week. You can read that story here.


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