Responsible Lending
Together with our mortgage lenders, Freddie Mac has been working throughout the crisis to build a strong foundation of responsible lending practices to produce better quality loans. Our goal is to create sustainable homeownership opportunities for America’s families, ensure fewer unexpected costs for our lenders, drive better loan performance, and reduce Freddie Mac’s dependence on taxpayer dollars.
Since 2009, we have:
- Strengthened credit standards on new single-family loans: our average FICO score today is 736 and our original loan-to-value (LTV) ratio is currently 72%.
- Forged best practices with our lenders in loan underwriting and processing.
- Implemented other measures to drive quality and consistency throughout the mortgage process.
- Helped educate future homebuyers about what is necessary to get a mortgage today: good credit, stable income and a common-sense down payment.
Through these measures, we've already seen notable improvements in the quality of loans we finance. In fact, compared with 2007 new-loan purchases (excluding loans refinanced through the Freddie Mac Relief Refinance MortgageSM):
- Our credit scores have increased.
- Our original LTV ratios have decreased.
- Our debt-to-income ratios indicate payments have become more manageable for borrowers.
While these changes involve costs for the lender – and in some cases, tighter credit requirements for borrowers – we believe these changes are essential to placing the housing finance system on a better foundation of responsible lending practices.
Single-Family Loans Freddie Mac Has Financed
| 2007 | 2010 | 1Q 2012 | |
|---|---|---|---|
| Average credit score on mortgages by book year * | 704 | 754 | 758 |
| Original LTV ratio of these mortgages (percent) * | 77 | 71 | 72 |
| Percentage of borrowers with low credit scores (<620) and original LTV ratios > 90% ** | 28 | 8 | 3 |
* Based on holdings as of March 31, 2012
** As of period end