Freddie Mac will stop purchasing and securitizing interest only mortgages.
The company said the IO morgages include Freddie Mac Initial Interest fixed-rate and adjustable-rate mortgages. Freddie Mac Initial Interest mortgages, provide for interest-only payments for a specified period of time beginning with the first monthly payment after the note date, and principal and interest payments on a fully amortizing basis for the remainder of the mortgage term.
It plans to stop on or around Sept. 1. Additional information will be provided to Freddie Mac seller/servicers in an upcoming single-family seller/servicer guide bulletin.
Freddie Mac said the unpaid principal balance of IO loans was almost $130 billion at the end of December, or 7% of its total portfolio. Nearly 18% of those loans were seriously delinquent, meaning at least 90 days late.
The company also issued its January mortgage portfolio summary this morning, saying its single-family delinquency rate rose to 4.03% during the month, up 16 basis points from December's rate of 3.87%.