Monthly Archives: May 2010

Fannie Mae Tightens Guidelines On ARMs And Interest Only Products

May 4, 2010
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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 Tumwater 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.

What’s Ahead For Mortgage Rates This Week : May 3, 2010

May 3, 2010
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Net Job Gains April 2008-March 2010Mortgage markets improved last week on tame inflation data, a benign statement from the Federal Reserve, and ongoing credit problems in Greece.

The factors combined to drop conforming mortgage rates in Lacey to their lowest levels in 6 weeks.

It’s an unexpected development considering that mortgage rates were supposed to rise post March 31, 2010.  That was the day the Fed’s support for mortgage markets ended.

Since then, however, a month-long string of devastating economic and meteorological events within the Eurozone sparked a global flight-to-quality that benefited “safe” assets such as mortgage bonds.

May 2010 may not be so kind. Monday’s bond market has opened in negative territory following early stock strength. The stock markets are starting the week in positive ground after Greece accepted a bailout package that should help stabilize the country’s financial system. The Dow is currently up 86 points while the Nasdaq has gained 14 points. The bond market is currently down 11/32, which will likely push this morning’s mortgage rates higher by approximately .125 – .250 of a discount point over Friday’s morning pricing.

The week starts with news that Greece reached a $147 billion bailout agreement with the IMF Sunday. This is a plus for the Eurozone and mortgage market negative. Rates should rise on the bailout.

Also on Monday, the government releases Personal Consumptions and Expenditures data. 

PCE is the Fed’s preferred inflation gauge and it’s expected to show an annual read of 1.3 percent. Anything higher and rates should rise.

Then, for the rest of the week, employment data takes center stage.

  • Wednesday : ADP releases its private sector employment data
  • Thursday : The government releases initial jobless claims
  • Friday : The government releases April’s job report

Jobs are key to the U.S. economic recovery, tied to consumer spending, consumer confidence, and mortgage delinquencies.  If job growth is better than expected, mortgage rates should rise.  If job growth is worse, rates should fall.

There’s no “best day” to lock this week so keep an eye on the market.  However, if rates in Washington State rise as quickly in May as they fell in April, you won’t have much time to act.