Orlando Mortgage Blog

Apparently, Freddie Mac has issued changes on July 13, 2007 as directed by their regulator, the Office of Federal Housing Enterprise Oversight (OFHEO), to their requirements for the  purchase of nontraditional mortgage products.

For the purpose of discussion, nontraditional Mortgages are Initial InterestSM Mortgages and other adjustable-rate Mortgages (ARMs) and fixed rate Mortgages that have an interest-only feature, as well as ARMs with the potential for negative amortization (such as the various payment option ARMs) that are purchased by them on a negotiated basis.

The changes are effective for these nontraditional mortgages with loan application dates on or after September 13, 2007 (Freddie Mac). What does this mean? It will be harder to qualify on one of these loans due to having to use a full P&I payment.  Update as of 7/18/07...Per a direct call I made to FNMA customer service, they will be putting out a notice on July 22, 2007 that is effective the same day, that is expected to be addressing the same issue in basically the same way as Freddie Mac.

• Nontraditional Fixed-Rate Mortgages. For Initial Interest fixed rate and other fixed-rate products with an interest-only feature, you must use the principal and interest payment that is based on a fully amortizing payment schedule for the term or the mortgage to qualify. Previously it has been qualified on the interest-only portion of the payment that is available for the first 10 or fifteen years in example.
• NonTraditional ARMs. For Initial Interest ARMs and other ARM products with an interest-only feature, you must use a principal and interest payment that is based on a fully amortizing payment schedule for the term of the mortgage. This means that you will qualify using payments calculated at the higher of the note rate or the fully indexed rate. The fully indexed rate is the sum of the Margin plus the Index on the loan at the time it is underwritten, within 90 days of the note date rounded to the nearest 1/8 of 1.0% (0.125%).

So, if you are considering one of these various programs, get your application in now or you'll loose a large part of the advantage in qualifying overnight with Freddie Mac and apparently FNMA. They do tend to keep in lock-step.

I thought you would like to know...

Bill Wilbanks /  www.OrlandoMortgageMasters.com