NAHB updates on mortgages

May 24, 2010

Fannie Mae Tightens Lending Standards, Helps Distressed Home Owners

Tightened Lending Standards
In an effort to return to more prudent underwriting, Fannie Mae has announced that it is tightening lending standards for adjustable rate and interest-only mortgages. Starting on June 19, home buyers who acquire an ARM with an initial fixed-rate period of five years or less will have to qualify at the note rate plus 2% or at the fully indexed rate. Because few consumers are choosing ARMs in the current market, the immediate impact of this change should not be substantial; however, ARMS will become more popular as interest rate levels increase. As for interest-only mortgages, Fannie Mae is structuring this option for borrowers who are in a position to choose it as a financial management tool rather than as a tool to make their monthly payments more affordable. To be eligible for interest-only loans, borrowers must demonstrate the ability to qualify for the loan when the interest-only feature ends and the payment is based on principal and interest. The borrower must also have a credit score of at least 720 and have 24 months of reserves at a minimum. Meanwhile, Fannie Mae has also announced the retirement of seven-year balloon mortgages as a standard mortgage product. More information is available in Nation's Building News.


Helping Distressed Home Owners Reenter the Housing Market
In separate news, Fannie Mae is making it easier for distressed borrowers to purchase new homes in the future. Changes described in its Announcement SEL-2010-05 are designed to reward owners who worked with their loan servicers when they experienced difficulty repaying their mortgage debt. Under Fannie's new policies, home owners who avoided foreclosure by exercising pre-foreclosure solutions such as a deed-in-lieu of foreclosure, short sale or pre-foreclosure sale will not have to wait so long to qualify for a mortgage to buy another home. For example, after a deed-in-lieu of foreclosure, home owners currently have to wait four years, but the new policies allow those who make a downpayment of 20% to get back in the housing market within just two years; under extenuating circumstances, such as the loss of a job, they will only have to put 10% down. Fannie Mae says these changes are aimed at addressing the needs of the housing market following the recession. The moves should also help home builders, mortgage lenders and Realtors by contributing to the ongoing housing recovery. For more information on either of the above items, please contact Steve Linville at 800-368-5242, x8597.

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