Severely higher delinquency on interest-only mortgages has prompted Freddie Mac to eliminate such loans from its purchases.
The government-controlled company said today that it plans to stop buying and securitizing interest-only mortgages.
The change is effective on Sept. 1.
While Freddie gave no explanation for the move, its monthly summary of operational activity today indicated that delinquency on interest-only fixed-rate mortgages is running around twice the rate of fully amortizing loans.
For instance, on fully amortized fixed-rate loans originated in 2006, the 90-day delinquency was 6.34 percent in January. But on interest-only fixed-rate loans from the same vintage, the rate was 15.33 percent.
On adjustable-rate mortgages, the fully amortized delinquency rate on the 2006 vintage was 11.11 percent — compared to 19.33 percent for interest-only ARMs.
