Freddie Mac said it plans to start purchasing option-adjusted adjustable-rate mortgages later this year as it tries to catch up with the market and the Wall Street conduits.
These adjustable rate mortgages offer borrowers several payment options, including interest-only payments, to address different and changing needs.
Option-ARMs are especially popular on the East and West coasts and lenders are originating tens of billions of these loans each month, Freddie vice president James Cotton said.
"The street is telling us that's where the ARM market is going," he added.
The secondary market agency plans to start purchasing option ARMs in bulk by the end of the year. And it wants to start buying loans on a flow basis in 2006.
The Freddie option-ARM will allow borrowers to chose from four payment options each time they write a monthly mortgage check.
The first option allows borrowers to make a minimum payment; a second option is an interest-only payment; while the third and fourth options allow borrower to chose between a 15-year or 30-year fully amortizing payment.
Ed Roberts can be reached at eroberts
