A housing band aid

19 April 2007 By Martin Hutchinson

Freddie Mac s promise of $20bn of subprime refinancing is a drop in the $1.5 trillion bucket. If things get worse, a full bailout of the subprime market would require government funding.

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Freddie Mac announced on 18th April that it would provide backing for up to $20bn of new mortgages to aid distressed subprime mortgage borrowers. Richard Syron, Freddie Mac's chief executive, said the offer was aimed at assisting borrowers who would normally qualify for fixed rate loans.

Fannie Mae announced on 17th April that it was adjusting its credit requirements so that more people could qualify for fixed rate mortgages, and extending the maximum term of its mortgages from 30 to 40 years.

According to the Mortgage Bankers Association, subprime mortgages totalled 13.7% of the $10.8 trillion of US home loans outstanding (approximately $1.5 trillion). Of those 13.3% were delinquent at 31st December, 2006. Approximately $450bn of subprime mortgage bonds were sold in 2006.

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