Freddie Mac exec: ARMs, interest-only loans safe

September 20, 2005

COO downplays mortgage giant's exposure

Inman News

Freddie Mac's chief operating officer on Monday said some new loans such as adjustable-rate mortgages that have prompted concern about a housing bubble appear safer than more traditional mortgage loans, Reuters reported.

Eugene McQuade, speaking at a Bank of America conference in San Francisco, said government-sponsored enterprise Freddie Mac is not too heavily exposed to adjustable-rate mortgages, or ARMs, which can offer borrowers lower rates early, but higher rates later, reports said.

He also downplayed potential concern about loans where borrowers pay only the interest due, known as interest-only loans, or less than the interest due, known as "negative amortization" loans because principal amounts due increase, reports said.

"On the (interest-only) and the (negative amortization), on the stuff that we have seen come through us, the credit quality is actually higher than on the 15- and 30-year fixed," said the COO of the No. 2 U.S. mortgage financier.

As of the end of June, 59 percent of McLean, Va.-based Freddie Mac's $1.3 trillion loan portfolio was in 30-year fixed-rate mortgages and 27 percent was in 15-year fixed-rate mortgages. One percent was in interest-only loans and another 10 percent was in various adjustable-rate mortgages.

Newer-style loans have allowed thousands of home buyers to cut initial monthly payments, letting them buy more expensive homes and, some say, drive up prices.

Separately, McQuade said Freddie Mac will see "some impact" to third-quarter results from Hurricane Katrina, but the company is "very well positioned" to handle it, Reuters reported. He said less than one quarter of one percent of Freddie Mac's guaranteed mortgages are in the three hardest-hit parishes in the New Orleans area, reports said.

Copyright 2005 Inman News

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