New Rules: If You Want an Adjustable Rate Mortgage (ARM) You Better Have Cash

Rest assured, if homebuyers or Realtors think they may have a good idea for a low down payment purchase loan program, they needn’t bother thinking since Fannie Mae has decided to make that executive decision on their behalf.  As of October 20th, the new choice will be between a fixed rate mortgage, fixed rate mortgage or fixed rate mortgage.  What’s best for the homeowner has now been mandated by Fannie Mae.

The maximum Loan to Value for ARM’s (Adjustable Rate Mortgages) is being dropped from 97% to 90% for all purchases and no cash out refinances (seriously, this is not a joke).  For all other ARM transactions, the Loan to Values will be dropped by 10% but not lower than 60% of the appraised value or purchase price (whichever is less).  So the new rules of the road will look like this:

Chart

Fannie Mae Loan to Value Chart

For a Complete Review of the New Eligibility Matrix, Click Here

In a market with record low interest rates, some may not think that this is a big deal because economically, a fixed rate mortgage makes a lot of sense right now.  But in a market where the economy is recovering, rates have drifted up and the yield curve produces rates on the 7/1 ARM that are dramatically lower than fixed rate mortgages (which is historically true), this is completely stupid.  What’s likely is that when that happens and the 7/1 ARM can be the best choice, Fannie Mae will still have these guidelines in place and thousands of homeowners will be denied the best loan for them.

But don’t you worry your pretty little head because Fannie knows what’s best for you.  You just sit there, don’t think and do what you’re told.

Charles Dailey – Branch Manager, Loan Officer, Certified Military Housing Specialist – CA DOC, MN DOC & WI DFI

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