On May 6, 2013, Fannie Mae and Freddie Mac (the GSEs) each announced their policies with respect to the effect of the Ability-to-Repay/Qualified Mortgage Rule on mortgages that are eligible for sale to each one of the GSEs
(see Fannie Mae Lender Letter LL-2013-05; Freddie Mac Industry Letter, dated May 6, 2013).
Both GSEs indicated in their respective announcements that their future purchase of loans would be limited to loans that are:
1. Qualified mortgages under the Ability-to-Repay Rule (Rule), including those meeting the special or temporary qualified mortgage requirements under the Rule; or
2. Exempt from the ability-to-repay requirements, such as investor transactions.
Accordingly, effective for mortgages subject to the ability-to-repay requirements under the Rule with application dates on or after Jan. 10, 2014, the GSEs will not purchase loans:
►That are not fully amortizing (e.g., no negative amortization or interest-only loans);
►With terms in excess of 30 years (e.g., no 40-year terms); or
►With points and fees in excess of three percent of the total loan amount or such other limits for low balance loans, as set forth in the Rule.
On Aug. 20, 2013, pursuant to Fannie Mae Selling Guide Announcement SEL-2013-06 and Freddie Mac Bulletin 2013-16, the GSEs announced their additional policies and requirements based on the Rule, including those relating to, among other things:
►Retiring mortgages with original maturities in excess of 30 years;
►Retiring mortgages with prepayment penalties;
►Introducing new points and fees thresholds of three percent for those mortgages covered by the Rule;
►Updating requirements for Higher-Priced Mortgage Loans (HPMLs) for the following mortgages:
►ARMs with initial periods of seven or 10 years
►Fannie Mae Refi Plus loans and Freddie Mac Relief Refinance Mortgages
These policies and requirements are effective for mortgage loans with application dates on or after Jan. 10, 2014 (see Fannie Mae Lender Letter LL-2013-06; Freddie Mac Industry Letter, dated July 2, 2013).
Please refer to the above-referenced Fannie Mae and Freddie Mac’s Bulletins and Letters for specific details.
Melanie A. Feliciano Esq. is DocMagic Inc.’s chief legal officer and currently serves as editor-in-chief of DocMagic’s electronic compliance newsletter, The Compliance Wizard. She received her JD from the Georgetown University Law Center, and is licensed in California and Texas. She may be reached by phone at (800) 649-1362 or e-mail [email protected]