Freddie Mac recently announced updates that aim to simplify and streamline the process of making loans conforming to its standards.
In a bulletin dated November 15, Freddie outlined credit and mortgage eligibility updates such as adding 5/5 ARMs as a financing option for more programs and streamlining the process of making Home Possible® mortgages.
How will these changes affect you as a prospective borrower of a conventional loan? Are these changes as extensive as to benefit 100k applicants like Fannie Mae’s back in July?
Buying a home?
Freddie Mac Updates Mortgage Rules
Effective November, borrowers will have seen changes and enhancements to Freddie Mac’s rules in the following areas:
- Expanded access to ARMs
- Removed Home Possible® income verification
- Updated Texas Equity Section 50(a)(6) mortgages
- Enhanced Loan Product Advisor® Suite
Say Hello to ARMs
Freddie Mac is giving more borrowers access to five-year adjustable-rate mortgages. This 5/5 ARM is now available under Home Possible®, Freddie Mac Relief Refinance Mortgages℠, and Financed Permanent Buy Down mortgages.
As an administrative matter, Freddie is changing references to certain ARM products to align with industry standards. The revised names, as follows, will properly reflect the ARM’s initial fixed-rate period and subsequent rate adjustment period, e.g. every five years for 5/5:
- 1-year ARMs to 1/1 ARMs
- 3-year ARMs to 3/3 ARMs
- 5-year ARMs to 5/5 ARMs
Home Possible® Income Verification Updates
Under Freddie Mac’s new rules, lenders are not required to verify all income on the loan application for Home Possible® loans. Lenders are instead asked to use income used in qualifying the borrower to establish that the program’s income limits are not exceeded.
This update aligns with Freddie’s treatment of income verification in other types of mortgages eligible for its purchase.
Texas Section 50(a)(6) Mortgages Now Include ARMs
Per its latest update, Freddie Mac is including ARMs as an option for borrowers who want take equity out of their homestead pursuant to Texas Sec. 50(a)(6) mortgages.
Lenders will follow Section 4301.7, as updated, in making these cash-out ARM loans. Also, in line with the recent changes made to the Texas Constitution affecting home equity loans that will become effective first day of 2018, Freddie Mac will release a guidance.
Enhancements to Loan Product Advisor®
Freddie Mac has enhanced its Loan Product Advisor® to calculate additional reserves required for mortgages securing second homes or investment properties.
Unlike the previous practice where lenders have to manually calculate these additional reserve requirements, these reserves will now be included in the required amount of reserves to be verified on the Feedback Certificate.
Freddie Mac is also rebranding its Selling System to Loan Selling Advisor and fully integrating it with the Loan Advisor Suite®. Loan Selling Advisor has the same functionality but with a new user interface and design.
More importantly, Freddie Mac is updating its Single-Family Seller/Servicer Guide to uphold and practice the principles of equal opportunity and non-discrimination based on the Minority and Women Inclusion Amendments Final Rule by its regulator, the Federal Housing Finance Agency.
Now, you know about these updates to Freddie Mac’s standards in making home loans. Tell us what you think. Speak with a lender today.
Justin McHood is a managing partner at Suited Connector and has been recognized by national media outlets as a financial expert for more than a decade.