Posted on Tuesday, May 18, 2010
On April 30, 2010, Fannie Mae released Announcement SEL-2010-06 to tighten underwriting for certain types of mortgages. To further limit payment shock for a borrower with an adjustable rate mortgage (ARM) that adjusts during the first five years of the loan, borrowers must be qualified at the higher of the note rate plus 2%, or the fully indexed rate. Interest-only mortgages are being restricted so they remain as a financial management tool, but are not available to make a mortgage affordable. Interest-only mortgages will no longer be available for cash-out refinances, Flexible mortgages, MyCommunityMortgage® loans, investment properties, or two- to four-unit properties. The minimum credit score for an interest-only mortgage is now 720, and the borrower must have reserves covering at least two years. In addition, the seven-year balloon mortgage will no longer be a standard Fannie Mae product.