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Fannie Mae Changes Standards for Purchase and Securitization of ARMs

In an announcement Friday, ""Fannie Mae"":http://www.fanniemae.com/kb/index;jsessionid=D1BMELIDCTFU5J2FECISFGI?page=home&c=homepage said it is changing the eligibility criteria for purchasing and securitizing adjustable-rate mortgage (ARM) products.


For ARMs with an initial period of five years or less, Fannie Mae will require that borrowers be qualified at the greater of the note rate plus 2 percent or the fully indexed rate (index plus margin).

The company said it created these new standards to protect homeowners from potentially dramatic payment increases and to help ensure that borrowers who hold these


types of mortgages can sustain 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 Marianne Sullivan, SVP of single family credit policy and risk management 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.""

In addition, Fannie Mae announced that it is changing the qualification criteria for interest-only loan products. Under the new criteria, the maximum loan-to-value ratio cannot exceed 70 percent, the borrower's credit score must be 720 or higher, and the borrower must have a minimum of 24 months of liquid asset reserves remaining after loan closing. In addition, balloon mortgages will no longer be eligible.

Fannie Mae said all loans not meeting the new guidelines must be purchased as whole loans on or before August 31, 2010, or delivered into the mortgage-backed securities pools with issue dates on or before August 1, 2010.

About Author: Brittany Dunn


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