On Friday Fannie Mae announced it will require borrowers using interest-only mortgages to place at least 30% down. This requirement will ensure that buyers can qualify for their mortgage payments should the interest rate rise to the CAP rate, which wasn’t the way the mortgages had been underwritten in the past.

Fannie Mae also said that in order for them to purchase ARM’s that borrowers must qualify using either:

1. The loan’s initial interest rate plus two percentage points.
2. The cap, the maximum the interest rate can rise.

“Our goal is to make sure consumers can sustain their mortgages and remain in their homes over the long-term, while helping our lender partners offer a range of mortgage products for qualified borrowers,” says Marianne Sullivan, senior vice president of Single Family Credit Policy and Risk Management at Fannie Mae, in a prepared release.

In light of defaults from the last 2 years, this makes sense to make sure the borrowers can sustain their mortgages payment should the interest rate rise and just in case the borrowers for some reason are unable to refinance their homes. Perhaps they should think about raising the credit score for those borrowers as well.

For more information on the FHA changes, inlcuding a summary of all changes,

Rates on 15-year fixed loans were also lower, averaging 4.40 percent, compared to 4.45 percent last week. Adjustable-rate mortgages also fell this week, the 5/1 ARM being at 4.27% and the 1 year at 4.32. .

“Fixed mortgage rates followed bond yields lower for the third consecutive week, pushing 30-year mortgages below 5 percent once more,” said Frank Nothaft, Freddie Mac vice president and chief economist. “Similarly, ARM rates eased along with shorter-term rates, as the federal funds futures market indicates no increase in the Federal Reserve’s target rate following its upcoming committee meeting on January 26th and 27th.

Source: Freddie Mac

According to Freddie Mac on Thursday, the 30 year fixed rate dropped from an average of 4.78% to 4.71% from last week. This is the lowest since Freddie Mac compiled data since 1971. Rates have been low all year because of the Fed’s purchase of mortgage-back securities, which in end in the Sping of 2010. This is helping to push mortgage applications which increased 2.1% during the Thanksgiving week stated the Mortgage Bankers Association. But while rates are low, there are still tight credit standards which may hinder buyers qualifying for the lowest rates.  Most buyers will need 20% down, and a high credit scrore in order to qualify. But the push has helped drive more than 4 percent in purchase applications and nearly 2 percent increase in applications to refinance existing loans.

More Cash Required for an FHA loan

The Federal Housing Administration officials are proposing policy changes for FHA-insured mortgage borrowers to help the agency increase its federally mandated funding requirements. Higher credit scores and an increase in the current minimum down payment may be what buyers across America will have to have an order to qualify for and FHA loan. This proposed change is due to increasing financial issues FHA has been facing, which has increased it’s exposure and led to more delinquencies. The Obama Administration may try to propose other ways of increasing closing costs instead of increasing the minimum down payment, such as increasing mortgage insurance premimums or raising minimum credit score requirements so that the change would only effect the lower scoring borrowers. This will make it harder for some but will also reduce the risk of FHA having financial difficulites. FHA’s traditional role was to help American’s reach their dream of homeownership. The details of the change aren’t expected to be final until next month.

Most of the decline was in refinances, which fell 16.2 percent and the purchase index declined 4.8 percent. Except for 15-year rates, mortgage rates were down slightly:

• 30-year fixed-rate mortgages decreased to 5.04 percent from 5.07 percent.
• 15-year fixed-rate mortgages increased to 4.53 percent from 4.51 percent.
• 1-year ARMs decreased to 6.79 percent from 6.86 percent.

Community development leaders and Affordable Housing partners have been lobbying Congress to change tax rules. At one time everyone was able to qualify for a loan whether they qualified or not and now the consumers in the middle are the one’s being turned down and the most affected.