Fannie Mae has announced new standards for the purchase and securitization of adjustable-rate mortgage (ARM) products. The company says it is changing its eligibility criteria to protect consumers from potentially dramatic payment increases and to help ensure that borrowers who hold these types of mortgages can sustain them beyond the initial interest-rate period.
‘Our goal is to make sure consumers can sustain their mortgages and remain in their homes over the long term, while helping our lender partners offer a range of mortgage products for qualified borrowers,’ says Marianne Sullivan, senior vice president of single-family credit policy and risk management at Fannie Mae. ‘These policy changes reflect our intention to continue providing liquidity to different market segments by ensuring that support for ARM products remains in appropriate circumstances.’
For ARMs with initial periods of five years or less, Fannie Mae will require that borrowers be qualified at the greater of the note rate plus 2% or the fully indexed rate (i.e., index plus margin).
Fannie Mae will continue to make available an interest-only loan product, but will change its qualification criteria. The maximum loan-to-value ratio cannot exceed 70%, the borrower's credit score must be 720 or higher and the borrower must have a minimum of 24 months of liquid asset reserves remaining after loan closing.
Balloon mortgages, which typically offer lower initial interest rates but leave a significant balance due at maturity, will no longer be eligible, except with special approval from Fannie Mae.
All loans not meeting the new guidelines must be purchased as whole loans on or before Aug. 31, or delivered into mortgage-backed security pools with issue dates on or before Aug. 1, the agency says.
SOURCE: Fannie Mae