Tighter Guidelines On ARMs And Interest Only Mortgages
May 21st, 2010
On April 30th, 2010, Fannie Mae announced some changes to how it does business.
The first change applies to Adjustable Rate Mortgages of 5 years or less. Borrowers must be qualified based on a mortgage rate 2% higher than the note rate. For example, if the Adjustable Rate Mortgage is 3.5%, the we have to qualify the borrower at 5.5%. The thinking here is that if and when the rate adjusts upwards, it wouldn’t create such a payment shock.
Another change is the dreaded 7 year balloon payment mortgage. This type of mortgage has been completely eliminated.
There were also changes to the interest only mortgage. The borrower now has to have a FICO credit score of 720 or better. No more cash out refinances are allowed. The mortgage must be for a purchase, or a rate and term refinance. And as of September 2010 this type of mortgage will be not be offered by Freddie Mac.
These changes will curtail predatory lending practices, and they will help keep homeowners in their houses.
Entry Filed under: Fannie Mae
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