Freddie Mac Issues Changes to ARMs and Affordable Home Programs
by: Michelle Peters
Commentary regarding Freddie Mac Bulletin Number 2012-21
On October 16, 2012 Freddie Mac released Bulletin number 2012-21 regarding revisions to ARM requirements and provided updates regarding Home Possible Mortgages. The bulletin details ARM rate caps and qualification requirements that will help reduce the risk of payment shock to borrowers at the time of rate adjustments.
With this bulletin, the revised requirements for ARM products that have Initial Periods of five years or less will have caps set at less than or equal to 2% for Initial Caps and Periodic Caps. Due to this revision, any ARM products falling into the five year (or less) adjustment period with caps that exceed the 2% limits will be retired. Examples noted in the bulletin are the 5/1 ARM with a 5-2-5 cap structure, 3/6-month ARM’s and 5/6-month ARM’s, to name a few.
Additionally, for all ARM products with Initial Periods of five years or less, qualifying the borrower must be done with 2% over the note rate or the fully indexed rate.
These ARM revisions will take effect for all mortgages with settlement dates starting July 1, 2013. Loan Prospector will be updated prior to July 1, 2013 and sellers will also be notified when the changes are implemented.
Also included in Bulletin 2012-21 is guidance regarding the Federal Housing Finance Agency (FHFA) median income estimates for 2012. Effective November 18, 2012, Loan Prospector and the Affordable Income & Property Eligibility tool will be updated to reflect the new 2012 median income estimates.
Freddie Mac is also revising the definition of “Underserved Area”
In conjunction with the new FHFA median income estimates for 2012, an Underserved Area would be: Census tracts or Block Numbering Areas (BNA) where the median income does not exceed 80% of the area median income, as follows:
- Minority census tracts that have a median income that does not exceed area median income at the time of loan origination.
- Census tracts designated as disaster areas where families reside and have an income that does not exceed area median income at the time of loan origination.
- Census tracts that have a minority population of at least 30% and a median income of less than 100% of the area median income.
Median income estimates and updated Underserved Area guidelines will be effective as of November 18, 2012. For more information, refer to Freddie Mac’s Bulletin 2012-21.
About the Author:
Michelle is Assistant Vice President at Bankers Advisory, Inc. She manages the pre-funding quality control division and overees the processing staff for post-funding document re-verification, fraud detection, credit reports and review appraisals. She can be reached at michelle@bankersadvisory.com
Michelle oversees the mortgage information security, vendor management, and pre-funding services, and manages the QC processing department. She received her associate's degree at the New England College of Finance and is a BA candidate at Bentley University.
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