Freddie Mac Pulls the Plug on Subprime Mortgages

McLEAN, Va. – Secondary mortgage giant Freddie Mac, under pressure from Congress and regulators, announced it is pulling out of the subprime mortgage market, adding new pressure on the sector. Freddie does not buy subprime mortgages but is one of the major players in the subprime mortgage bond market, holding about $200 billion in paper backed by the subprime mortgages. The move, which will reduce liquidity in the market, comes as subprime lenders are reporting mounting foreclosure rates leading to major losses. Several subprime lenders have filed for bankruptcy in recent weeks and Tuesday Fremont General Corp., the largest subprime lender, delayed its fourth quarter and annual financial reports. While credit unions make few subprime loans, observers are worried the troubles may spread throughout the whole mortgage market.