Fannie Mae Tightens Lending Guidelines

Fannie Mae has announced it will further toughen its lending guidelines for its adjustable-rate (short term) and interest-only loan programs. Citing the usual rhetoric about consumers not understanding the terms of the mortgages they took out during the housing boom, the company will enact the following changes.

For adjustable-rate mortgages of five years or less, lenders will now have to consider how high a borrower's mortgage payments might increase after the initial teaser rate expires by calculating whichever is greater: two points above the current index, or the current index plus the margin tied to the individual arm loan program.

For interest-only mortgages, borrower's will now be required to make a down payment of 30%, have a minimum credit score of 720 and provide proof of having enough funds in savings to cover their new mortgage payment for 24 months as a fall back cushion.

The new guidelines are set to go into effect in September.