ity to make initial ``teaser'' payments, the McLean, Virginia-based company said today in a statement.

At least 20 subprime lenders in the U.S. have closed, scaled back or sold themselves in the past five months amid a rise in delinquency rates. The loans made up about a fifth of all new mortgages last year, according to the Washington-based Mortgage Bankers Association, an industry trade group.

When ``Freddie Mac steps back, it effectively is making credit standards tighter, which makes the ability to borrow more expensive, and that will not help the housing market,'' Andrew Harding, who oversees about $17 billion as chief investment officer for fixed-income at Allegiant Asset Management in Cleveland, said in an interview today.

Mortgages made before Sept. 1 will be exempt from the requirements. Lenders have already tightened guidelines, which may create less housing demand and more defaults when subprime borrowers can't refinance, according to analysts at securities firms including Credit Suisse Group.

`Unhappy Result'

``The last thing you want to do to that market is take out a major purchaser overnight,'' Freddie Mac Chairman and Chief Executive Officer Richard Syron said in an interview today.

``I saw the New England credit crunch as president of the Boston Fed, everyone turned off the spigot all at once, and it's a very, very unhappy result,'' said Syron, who was head of the Federal Reserve Bank of Boston from 1989 to 1994.

Congress created Freddie Mac and the larger, Washington- based Fannie Mae to expand homeownership by increasing mortgage financing. The companies own or guarantee about 40 percent of the about $10.5 trillion residential U.S. mortgage market.

Brian Faith, a spokesman for Fannie Mae, said in a statement that it is waiting for further guidance from bank regulators before making any changes.

Freddie Mac probably buys about 20 percent of AAA rated subprime-mortgage bonds, which represents most of its activity in the subprime market, Syron said. Freddie Mac and Fannie Mae have bought about 25 percent of such AAA rated securities created in recent years, according to the estimates of Frederick Cannon, an analyst at Keefe, Bruyette & Woods Inc. in San Francisco.

Little Concern

Because investors in AAA mortgage bonds aren't impacted by loan losses until they reach high levels, ``this is not at all a concern, from a Freddie perspective, of safety and soundness,'' Syron said. The company already avoids some mortgages that impose penalties when borrowers pay off the loans early, and ones that force disputes into arbitration.

Typical floating-rate triple AAA rated subprime mortgage securities yield about 0.16 percentage point over benchmarks, or the same as the average over the past year, according to Feb. 22 report by Citigroup Inc. About four-fifths of securities backed by subprime loans get AAA ratings.

Investor concerns about low-rated subprime bonds have surged. Yield premiums over benchmarks on bonds with the lowest investment-grade rating rose 1.75 percentage points in the two weeks ended Feb. 23 to 4.75 percentage points, the highest in more than two years, according to RBS Greenwich Capital.

Higher Rates

Shares of Freddie Mac fell $1.23, or 1.9 percent, to $63.70 today on the New York Stock Exchange. They are down 6.19 percent this year.

Subprime mortgages are given to people with poor or limited credit records or high debt burdens and typically have rates at least two or three percentage points above safer prime loans. About 2 percent subprime mortgages made last year were more then 60 days late after five months, nearly twice the rate for ones made in 2005, and the worst rate in at least seven years, according to a Feb. 22 report from Barclays Capital.

Freddie Mac wants to steer lenders toward making better loans, Syron said. The company also will limit the use of low- documentation lending for the mortgages. It recommended lenders collect borrowers' taxes and insurance payments in escrow accounts; they also must be accounted for in underwriting.

Rising Delinquencies

The share of residential real estate loans banks whose payments were at least 30 days overdue rose to 2.11 percent last quarter, the highest since the end of 2002, according to data posted on the Federal Reserve's Web site today.

The Senate Banking Committee asked the Fed in a Dec. 7 letter to have regulators amend guidance in September to banks on ``nontraditional'' mortgages to include subprime ARMS. Bank regulators have said they're working on making changes.

Committee Chairman Chris Dodd, a Connecticut Democrat, this month told Fed Chairman Ben S. Bernanke in a hearing that regulators' response was ``inadequate.'' Underwriting on subprime ARMs does ``not pass this test,'' the letter said.

Dodd applauded Freddie Mac's ``leadership'' on the issue in a statement today. The Mortgage Bankers Association said restrictions will limit ``access to credit for those individuals most in need.''

Freddie Mac's ``stamp of approval'' was on the lending practice for too long, said Peter Schiff, president of Euro Pacific Capital, a securities brokerage in Darien, Connecticut. ``They were supposed to provide a secondary market for mortgages so people could buy homes, not speculate on them.''

For several years, looser standards for subprime mortgages ``really was not injurious to most people that took them out, but actually beneficial to them,'' Syron said. ``What's appropriate in the middle of 2007 might be different than what's appropriate in the early part of 2006.''

To contact the reporter on this story: Jody Shenn in New York at jshenn@bloomberg.net .