Goodbye 2/28 Loans, We'll Miss You!

Freddie Mac announced this month that he would no longer be buying risky 2/28 loans. Most of us know these loans as the kind that borrowers with damaged credit take on in order to purchase a home. In fact 4 out of 5 sub prime loans are 2/28's. This loan helps the buyer get into a house with two years of low fixed payments. At the end of 2 years, the loan switches to a variable rate potentially making the home owner's monthly payment shoot sky high. The game plan with these loans is that buyers will improve their credit during the 24 months of fixed payments, then refinance into a 30-year fixed option at the end of the 2 years.

I guess Freddie has found these loans to be too risky, hence too expensive. Foreclosure rates are enormous with these loans, so it was only a matter of time before it came to this. Freddie claims that he will be think-tanking new kinds of loans for borrowers with troubled credit, but what that is and who it will serve remains to be seen. Article in REALTOR Magazine

Jennifer Bunker, CRS, GRI
Utah Real Estate Broker