Criteria Changes for Fannie Mae Purchasing and Securitizing Adjustable-Rate Home Mortgages

Recently Fannie Mae announced some new standards for the acquisition and securitization of adjustable-rate mortgages (ARM). The company is changing its eligibility criteria to protect consumers from potentially unexpected payment increases and to help ensure borrowers who hold these types of mortgages can keep up with 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,” said Policy and Risk Management Vice President 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 5 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.

Fannie Mae also said it will continue to make available an interest-only loan product, but will change its overall qualification standards. The maximum loan-to-value ratio cannot exceed 70 percent, the borrower’s credit score must be at least a 720, and borrowers must have a minimum of 24 months of liquid asset reserves remaining after home closing. Balloon mortgages, which have typically offered lower initial interest rates but leave a significant balance due at maturity, will no longer be eligible.

Fannie Mae purpose is to expand affordable housing and bring global capital to local communities in order to serve the U.S. housing market. Fannie Mae has a federal charter and operates in America’s secondary mortgage market to enhance the liquidity of the mortgage market by providing funds to mortgage bankers and other lenders so that they may lend to home buyers. Our job is to help those who house America.

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