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Freddie Mac to Cease Purchases of Interest-Only Mortgages

In an announcement Friday, ""Freddie Mac"":http://www.freddiemac.com/ said effective September 1, 2010, it will no longer buy or securitize interest-only mortgages.


Interest-only mortgages, including Freddie Mac Initial Interest fixed-rate and adjustable-rate mortgages, provide for interest-only payment for a specified period of time, and then principal and interest payment for the remainder of the mortgage term.

The government-sponsored enterprise said additional information on this policy will be provided to Freddie Mac seller/servicers in an upcoming bulletin.

""As DSNews.com reported"":http://dsnews.comarticles/freddie-mac-reports-78b-loss-for-q4-2010-02-24, Freddie Mac released its fourth quarter and full-year financial results earlier this week, posting a $7.8 billion loss for the fourth quarter and a $25.7 billion loss for the year. According to the ""report"":http://www.freddiemac.com/investors/er/pdf/10k_022410.pdf, interest-only and Alt-A loans collectively accounted for 44 percent of Freddie Mac's credit losses in 2009.

""Our purchases of these mortgages and issuances of guarantees of them expose us to greater credit risks than do other types of mortgages,"" Freddie Mac said in its report.

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