Freddie Mac will stop purchasing interest-only loans

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Freddie Mac has announced it will stop purchasing and securitizing interest-only mortgages as of Sept. 1.

The company, which is current under government conservatorship, says that includes Freddie Mac’s fixed-rate and adjustable-rate interest-only loans.
Under interest-only loans, borrowers make interest-only payments for a fixed amount of time before paying monthly payments that include both principal and interest. The loans have a high delinquency rate.

Interest-only loans make up about 7 percent of Freddie Mac’s single-family mortgage portfolio, according to its fourth-quarter earnings release. These had a 17.6 percent delinquency rate, with homes that were either delinquent on payments for 90 days or in foreclosure.

The company said most of the interest-only loans are concentrated in the western U.S., where housing prices have dropped dramatically.

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