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Fannie Mae changes guidelines for interest only loans

Fannie Mae’s plan for interest only loans

Fannie Mae has announced that it will be tightening requirements for the interest only loans they back effective August 31, 2010. Buyers will be required to make a down payment of 30% of the sale price among other tighter requirements.

For an interest only loan, Fannie Mae will require a minimum credit score of 720 and qualification will be based on buyers having enough in the bank to cover the mortgage for two years as a fall back cushion.

Fannie’s ARM plan

Adjustable rate mortgages will see altered guidelines as well to insure borrowers can afford the payments even if rates reset higher. Borrowers will have to qualify based on two percentage points above their original interest rate and qualify based on the cap rate.

“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, Senior Vice President of Single Family Credit Policy and Risk Management at Fannie Mae, in a prepared release.

Consumer and agent response

Bubble bloggers and the like point out that a move like this some time ago might have curbed much of the crash if Fannie Mae had been more stringent to begin with.

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Fannie Mae says these new guidelines force only buyers with the ability to use these loans “as a financial management tool, rather than as an affordability tool” can qualify. This position has investment brokers and rental property investors reevaluating how they will invest come this fall.

Lani is the COO and News Director at The American Genius, has co-authored a book, co-founded BASHH, Austin Digital Jobs, Remote Digital Jobs, and is a seasoned business writer and editorialist with a penchant for the irreverent.

13 Comments

13 Comments

  1. Doug Francis

    May 4, 2010 at 10:44 pm

    The first “interest-only” loan I saw was around 1995 through Merrill Lynch. My client (the buyer) had to place about 30% of the home’s value in a special Merrill asset management account and then Merrill provided the financing.

    The listing agent was having a fit because it was so unorthodox… but it worked out well since the value of the “locked” investments rose significantly as did the value of the home.

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