Fannie Mae on Friday said it will tighten lending standards on adjustable-rate mortgages and "interest-only" loans that helped fuel the housing bubble and have led to a disproportionate share of losses for the mortgage-finance giant.'bout time. How long ago did the financial crisis start?
The changes, which will take effect in September, will require lenders to qualify borrowers based on whether or not they can afford potentially higher payments once adjustable-rate loans reset, and will require much more stringent criteria for interest-only borrowers.
During the housing boom, borrowers increasingly used adjustable-rate mortgages with low initial rates to buy bigger homes and banked on ever-rising values to refinance before payments rose higher. When prices stopped rising, more borrowers weren't able to sell or refinance to avoid higher payments. That sent defaults soaring. ...
Freddie Mac said earlier this year that it would stop buying interest-only loans in September. Fannie said it will continue to offer such loans, but it will require borrowers to have credit scores of at least 720 and 30% equity. Borrowers must also have at least two years worth of cash reserves remaining after closing.
For adjustable-rate mortgages that reset within their first five years, lenders will have to qualify borrowers under higher payment levels, using the greater of either the current interest rate plus two percentage points, or the current interest rate plus the extra margin charged by the lender.
Monday, May 03, 2010
Fannie Mae to tighten ARM and IO lending standards
Fannie Mae is finally moving toward sensible lending standards:
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James, how many homeowner's monthly mortgage payments--including principal, interest, real estate taxes and homeowners insurance--exceed 28 percent of their gross monthly income?
ReplyDelete"how many homeowner's monthly mortgage payments--including principal, interest, real estate taxes and homeowners insurance--exceed 28 percent of their gross monthly income?"
ReplyDeleteIf you'd like to fund a study to answer this question I can provide you with a referral.
Yeah... Well, let's just wait and see, here. It's one thing to issue a nice press release and promise that things are going to change. It's another thing entirely to enact the sorts of changes that you're promising. Given the history of our financial system, I'm not going to hold my breath.
ReplyDeleteI know of a person whose mortgage payment alone exceeds 43% of her monthly gross income...so what.
ReplyDeleteVA loans have no requirement for percentage of mortgage payment to gross income. Total debt including mortgage payment however typically cannot exceed 41% of gross income. It's all relative, ratio requirements may leave one person with just enough for food and healthcare while the same ratio leaves another person scraping by on just one Tuscan villa, a stable of thoroughbreds, and a vintage porshe collection.
ReplyDeleteVery good point Tuskenrayder. And sometimes a job loss and a drop in home values of 26% can strike even those weel-off.
ReplyDeletehttp://money.cnn.com/2010/05/05/pf/home_debt.moneymag/index.htm