Freddie Mac has stepped in to help the ailing secondary market for Alt-A loans.
The McLean, Va.-based company is negotiating the capability to provide 90-day forward commitments on alternative-A mortgages with its experienced sellers, according to a letter from the secondary lender's Senior Vice President Paul E. Mullings.
The credit terms will accommodate most fixed and adjustable-rate loans to Alt-A borrowers with reduced documentation, the letter stated. Underwriting of these loans will include appropriate credit risk offsets.
The secondary market for nonconforming loans, including Alt-A mortgages, has recently dried up.
Impac Mortgage Holdings Inc, which had relied on Alt-A business for most of its originations, recently abandoned the niche. IndyMac recently said it would shift its focus from Alt-A to conforming business, while National City, SunTrust, Wachovia Mortgage and Wells Fargo Home Mortgage have either suspended Alt-A business abandoned it altogether.
And Alt-A companies including American Home Mortgage Investment Corp., Flick Mortgage Investors Inc., Mylor Financial and WinStar Mortgage Partners Inc., have recently collapsed.
"Freddie Mac continues to be an active force in the Alt-A market and is taking steps to increase liquidity in the Alt-A market while maintaining its commitment to prudently and responsibly manage mortgage credit risk," Mullings said in the note. "At the same time, we are committed to continuing our current bulk purchases of a wide range of Alt-A products on a spot bid basis."