More on my previous post – credit tightening

If you're new here, you may want to subscribe to my RSS feed. Thanks for visiting!

Well, as reported yesterday the biggest of the big have made public their plans to tighten credit guidelines. Freddie Mac, one of the two government-backed private-sector mortgage backed securities purchasers (the other being Fannie Mae) has announced significant changes to its purchasing guidelines regarding subprime mortgages. The Mortgage Market Guide (subscription) reported today:

In other news, Freddie Mac (FRE) reported it will tighten its standards for buying mortgages in the sub-prime category. Freddie said it will stop buying mortgages, "that have a high likelihood of excessive payment shock and possible foreclosure." … Freddie Mac also said it would limit the use of loans that do not require income verification or other documentation, and will recommend that lenders collect adequate escrow for taxes and insurance payments.

So there you have it. The big boys will stop buying these poor-credit mortgages. If banks want to buck the trend and continue to offer lower credit loans they will have fewer places to sell them; which means they will be at significantly higher rates and will be in short supply.