Fannie Mae Tightens Guidelines On ARMs And Interest Only Products

Fannie Mae tightens its mortgage guidelinesFor the first time this year, Fannie Mae announced significant updates to its mortgage underwriting guidelines.

The changes include newer, harsher ARM qualification standards, the elimination of a once-popular loan product, and tighter rules for interest only mortgages. 

Fannie Mae made its official announcement April 30, 2010.  The changes will roll out to home buyers and homeowners in Tampa and everywhere else over the next 12 weeks.

The first guideline change is tied to ARMs of 5 years or less. 

Mortgage applicants must now qualify based on a mortgage rate 2% higher than their note rate.  For example, if your mortgage rate is 5 percent, for qualification purposes, your rate would be 7 percent.

The elevated qualification payment will disqualify borrowers whose debt-to-income levels are borderline.

The second change is Fannie Mae’s elimination of the standard 7-year balloon mortgage.  Balloon mortgages were popular early last decade.  Lately, few borrowers have chosen them, though.  Mostly because rates have been relative high as compared to a comparable 7-year ARM.

And, lastly, Fannie Mae is changing its interest only mortgages guidelines.

Effective June 19, 2010, Fannie Mae interest only mortgages must meet the following criteria:

  1. The home must be a 1-unit property
  2. The home must be a primary residence, or vacation home
  3. The borrower’s FICO must be 720 or higher
  4. The mortgage must be a purchase, or rate-and-term refinance. No “cash out” allowed.

Furthermore, borrowers using interest only mortgages must show two full years of mortgage payments “in the bank” at the time of closing.

Earlier this year, Fannie Mae-sister Freddie Mac announced that as of September 2010, it will stop offering interest only loans altogether.

Between Fannie Mae, Freddie Mac, the FHA, and other government-supported entities, the U.S. government now backs 96.5% of the U.S. mortgage market.  So long as mortgage default rates are high, expect approvals for all borrower types to continue to toughen.

About Edgar DeJesus

Edgar DeJesus, a Husband first and foremost who shares his life with his loving wife Emily and their pet Charleston(chocolate American Cocker Spaniel). Fellow colleagues recognize him as one of the top mortgage planners in the Tampa Bay market and a fellow professional you can count on, his clients love him for being their trusted advisor. What keeps this hardworking mortgage planner going is his pure passion to deliver an extraordinary customer service experience. The question behind his motivation is simple – What differentiates him from every other real estate financing professional? He answers the question by saying: On every mortgage I provide for a client I treat it as if I were buying or building a home for my family, consolidating my debt, lowering my interest rate, or improving my own home. I deliver no less than I would expect if someone were providing me with a mortgage and most important their want & need is my want & need. He also says it is not just about providing mortgages, it’s about building life long lasting relationships. Some of his favorite hobbies are spending time with his family and friends, playing golf, dining at steakhouses, & fellowship with others.

Satisfaction for Edgar DeJesus comes from not only closing loans but rather opening doors. Receiving referrals from clients is a great compliment he can receive and the greatest compliment is to have clients repeat their loan experience with him. A great demonstration that he does not over promise and under deliver.

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