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By: Staff Reporter
US government-backed mortgage giant Fannie Mae has announced it will tighten lending requirements for interest-only loans and adjustable rate mortgages.
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According to a report in CNN Money, homebuyers will now need to show 30 per cent genuine savings in order to obtain one of the lenders interest-only mortgages.
"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," Fannie Mae senior vice president of single family credit policy and risk management Marianne Sullivan said.
"These policy changes reflect our intention to continue providing liquidity to different market segments by ensuring that support for adjustable rate mortgage products remains in appropriate circumstances.”
Fannie Mae will also demand that borrowers of interest-only loans have credit scores of at least 720 and sufficient cash cushions to be able to continue mortgage payments and other housing expenses for 24 months.
Moreover, Fannie has said it will stop funding so-called balloon mortgages. With these, borrowers pay at a rate lower initially than the nominal interest rate on their mortgages. The difference between the two builds up every month and has to be repaid with one huge payment at a specified date.
