Freddie's Appetite Grows For Adjustable Loan Products.(Freddie Mac)

Freddie Mac is finding attractive pricing on adjustable-rate mortgages, including subprime interest-only loans, according to the company's top investment officer Patricia Cook.

"Agency and AAA-rated non-agency ARM products currently represent an increasing percentage of our total purchases" for the retained mortgage portfolio. "These products provide attractive risk-adjusted returns," the executive vice president for investments said.

Returns on fixed-rate products are not as attractive because of investor demand, she explained.

Ms. Cook made her remarks in response to questions during a recent teleconference in which top Freddie executives briefed analysts and investors on the company's business outlook.

On the investment side "we permit IO mortgages to be included as collateral backing non-agency AAA securities in which we invest," she said.

In the case of subprime asset-backed securities, Freddie makes sure the loans comply with its anti-predatory lending guidelines, which limit prepayment penalties to three years and ban mandatory arbitration clauses. The company also requires higher levels of subordination, a company spokesman said.

Meanwhile, growth of the retained mortgage portfolio slowed to a 3.1% annual rate in September. Freddie executives estimate the growth rate for the year will be in the low- to middle-single digits.