Freddie Mac loan program for today's housing market

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The residential real estate sector is painstakingly working its way out of the darkness where it was unceremoniously  shoved by the recent marketplace excesses. There is little doubt that things right now are looking up but the road to a solid, sustainable housing recovery is still in the early stages of gathering steam, traveling a bumpy road. Many who have dreamed of owning a home, and qualifying for a mortgage, have been slowed down for various reasons on that quest by the economic downturn.


Freddie Mac, the government sponsored enterprise or GSE, may just have the right mortgage loan program available for the hopeful home loan applicant in this otherwise tough housing and economic environment. It is called the Affordable Merit Rate Mortgage. It’s good to keep in mind that Freddie Mac does not originate mortgages, instead it buys them from home loan lenders on the secondary mortgage market. Let’s go over its basics now.  


It is designed for those mortgage borrowers with past credit issues – this exceptional downturn has certainly spawned a few - who usually would have limited product choices and would also face higher interest rates. The Affordable Merit Rate Mortgage can bring the rate closer to what the going conventional one is, for starters. Furthermore, it is limited to 1- to 2-unit primary residences, with condominiums and PUDs thrown in. As a rule it accommodates 30-year fixed rate mortgages, is for purchases only and turns a cold shoulder on cash-out refinances.           


But the really noteworthy feature is that borrowers would benefit from a 1% mortgage interest rate reduction if they make their payments on time for 24 consecutive months within a 4-year time frame counted from the onset. Basically, if they meet the criteria, the 1% drop is effective the month after the 2-year anniversary. That feature right there is something to write home about.


The Affordable Merit Rate Program fits well the current recovering real estate arena. It offers a mortgage product that may qualify applicants with less than stellar credit files for a lower interest rate. It allows borrowers to establish a better credit history over time and with the built-in rate dip element it can negate the need to refinance the mortgage later on.  


Who says Freddie Mac can’t be an innovator? As a side note, the GSE reported recently that its second quarter 2012 net income improved to $3.0 billion, leaving it with a net worth of $1.1 billion which then enabled it to avoid a draw from the Treasury.



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Esko Kiuru
Mortgage, real estate and apartment industry analyst - syndicated mortgage, housing and property management blog
My cell: 702-499-1006


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George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
Your Connecticut Mortgage Expert

Esko, that is very creative.  We underwrite under Fannie Mae Guidelines, so I wonder if Fannie will be coming out with a similar program.

Aug 16, 2012 12:00 PM #1
Esko Kiuru
Bethesda, MD


Mortgage loan applicants should definitely consider this program when looking for home financing.

Aug 24, 2012 10:11 AM #2
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