Freddie Mac, in response to the recent credit crunch in the Alt-A mortgage market, released a statement (no link, sorry) regarding its support of Alt-A lending and its intentions to provide liquidity to that segment of the mortgage market.
From the release:
Freddie Mac continues to be an active force in the Alt-A market and is taking steps to increase liquidity in the Alt-A market while maintaining its commitment to prudently and responsibly manage mortgage credit risk.
“Specifically, Freddie Mac is providing 90-day forward commitment capability on a negotiated basis to experienced lenders with credit terms that will accommodate a majority of the fixed and adjustable rate Alt-A product, including many of the reduced documentation mortgages underwritten with appropriate credit risk offsets that Freddie Mac now purchases on a bulk basis through structured transactions.
Available credit terms specifically include reduced documentation mortgages under-written with appropriate credit risk offsets.
So let’s take a quick look at this one. Investors are running for the aisles in the Alt-A category as low documentation loans continue to tank in performance and Freddie Mac steps in to provide funding ” specifically [for] reduced documentation mortgages”? That doesn’t make a whole lot of sense to me.
Why would a government entity step in (it?) to take on risks deemed unacceptable to the greater market? I get the point of providing liquidity but Freddie and Fannie are already questionably positioned in terms of risk and this really just is asking for more bad loans to come surging through the doors. IndyMac, Impac and the other Alt-A behemoths must be lobbying extra hard up at the GSE offices.
In my humble estimation the words responsible and reduced documentation are strange bed-fellows don’t you think?
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[Source: Blown Mortgage]
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