Average 15-year fixed mortgage rate down to 5.92%

Freddie Mac's Weekly Primary Mortgage Market Survey shows that the average 15-year fixed mortgage rate is down to 5.92%. Despite all the chatter about subprime "carnage", relatively cheap mortgages continue to be available to consumers with semi-decent credit.

Freddie Mac has issued new tougher standards for subprime lending, but is also offering new products designed to offer subprime borrowers more choices even though standards will be tougher:

Freddie Mac (NYSE: FRE) today announced that it will cease buying subprime mortgages that have a high likelihood of excessive payment shock and possible foreclosure. First, Freddie Mac will only buy subprime adjustable-rate mortgages (ARMs) – and mortgage-related securities backed by these subprime loans – that qualify borrowers at the fully-indexed and fully-amortizing rate. The goal is to protect future borrowers from the payment shock that could occur when their adjustable rate mortgages increase.

Second, the company will limit the use of low-documentation underwriting for these types of mortgages to help ensure that future borrowers have the income necessary to afford their homes. In addition, Freddie Mac will strongly recommend that mortgage lenders collect escrow accounts for borrowers' taxes and insurance payments.

To continue to offer reasonable products to subprime borrowers, Freddie Mac has some new offerings:

To help lenders better serve borrowers with impaired credit, Freddie Mac is also developing fixed-rate and hybrid ARM products that will provide lenders with more choices to offer subprime borrowers. For example, in contrast to the payment structures of many of today's "2/28" ARMs, Freddie Mac's new hybrid ARMs will limit payment shock by offering reduced adjustable rate margins; longer fixed-rate terms; and longer reset periods. Freddie Mac will require originators to underwrite these products at the fully indexed and amortizing rate. The company plans to commit significant capital to purchasing these loans into its retained portfolio.

Maybe the sky isn't falling after all.

-- Jack Krupansky