Yikes

Freddie Mac is planning to toughen its standards regarding sub-prime loans. We had reports of one sub-prime lender failing to fund loans this week, and we had personal experience with another which did not fund a loan for three days. Delinquencies are way up, which I would attribute, at least in part, to the current adjustments of adjustable rate mortgages. Several years ago, when rates were very low, many lenders put people into adjustable rate mortgages. Many of those people barely qualified at those "introductory" rates, and now that the rates are adjusting, they simply cannot afford their payments any longer. We are aware of several individuals who were told by their loan officers that they would refinance them "no problem" before the adjustments started. Their loan officers are not returning their calls now.

Apparently Freddie will only buy 2/28 and 3/27 (fixed for 2 and 3 years respectively, and adjustable for 28 and 27) loans if the borrowers qualify for the highest rate the loan could ever have, i.e., the ceiling. Which is what they should have been doing all along. But what do I know...

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