Freddie Mac Announces Expansion of its 40-Year Mortgages, ARMs & Online Services

Yesterday, Freddie Mac announced that it is dramatically expanding the list of mortgage products available through its web-based Selling System this summer. The company will be adding a new array of 40-year fixed-rate loans, as well as 20 more adjustable-rate mortgage options and rural housing products to its Loan Prospector automated underwriting service and its online Selling System.

Freddie Mac officials also announced that they are beefing up the company’s flagship suite of Home Possible affordable mortgage products by adding special longer-term home loans such as a 40-year fixed-rate option, while providing lenders with more selling options to remain competitive. Separately, the company is revising its list of property insurance requirements to facilitate mortgage purchases in coastal markets where insurers are in disarray.

“Today’s announcements underscore our commitment to respond quickly to our customers’ call for more flexible products and faster decisions on one easy- to-use web-based platform, and further fulfill our pledge to build new pathways into the secondary market while delivering a superior business experience to our customers,” said Paul Mullings, Senior V.P. of Single Family Sourcing at Freddie Mac.

The enhancements announced yesterday at the Mortgage Bankers Association’s National Secondary Conference and Expo in Chicago, Ill., are scheduled to begin rolling out this summer. They are being announced now to give Freddie Mac customers and other industry participants time to take full advantage of them once complete product requirements are released.

Fully implemented, the enhancements will make it possible for lenders to assess, price, and deliver on a flow basis virtually every mortgage product offered in Freddie Mac’s seller / servicer guide. Today’s announcement also brings Freddie Mac’s legacy MIDANET system one step closer to retirement.

THE 40-YEAR FLORIDA HOME LOAN?

Freddie Mac is in the process of rolling out a comprehensive line-up of 40-year home loan options beginning with a standard 40-year fixed-rate product (a 40-year version of the Freddie 100 no down payment mortgage product and a 40-year Alt 97 mortgage).

“This is just the beginning of a robust product strategy designed to give lenders a highly flexible array of 40-year products so more customers can better match their home buying ambitions with their circumstances,” said James Cotton, V.P. of Mortgage Sourcing at Freddie Mac.

The first set of planned enhancements include a 40-year Florida home loan option that builds on Home Possible’s standard low down payments, flexible credit underwriting, and conforming conventional rates to give cash and credit strapped borrowers even more buying power. In a time when Florida home loans are rising by the week, this can be of monumental importance.

For example, if a Florida buyer were to opt for a $200,000, 40-year, no down payment Home Possible mortgage at today’s rates, a borrower would need 3.5 percent less monthly income to qualify, and would enjoy a 4.5 percent cut in their monthly housing payment and 5 percent more homebuying power versus a 30-year version of the same Florida home loan.

“This is the next logical step for giving more Home Possible borrowers a responsible way to lower their monthly payment and make successful, long-term homeownership a reality,” explained Mullings.

Announced in 2005, Home Possible expands buyers’ affordable homeownership opportunities by enabling qualified borrowers to finance single-family homes with as little as $500 of their own funds for down payments or closing costs.

Freddie Mac is also going to be providing a servicing released cash-sale option to lenders who deliver Home Possible loans through Freddie Mac’s web-based Selling System in response to customer demands. Other changes announced at the MBA Secondary will cut the minimum borrower contribution for financing 3-4 unit properties from 5 percent to 3 percent, enabling borrowers to use Mortgage Credit Certificates and Rural Housing Service Leveraged Seconds.

Freddie Mac officials told the MBA conference the company is in the process of aligning underwriting policies to accommodate recent property insurance deductible increases triggered by the last two years of severe hurricanes in Florida and along the Gulf Coast. The Florida property insurance saga is all too familiar to Sunshine State residents.

The modification will increase the maximum deductible in Freddie Mac’s guidelines from 2 percent to 5 percent for fire, water (not caused by flooding) or wind insurance coverage for 1- to 4-unit properties, condos and Planned Unit Developments (PUDs). The change will give more borrowers access to lower Florida home loan rates through Freddie Mac loans and help support the housing recovery efforts along the Gulf Coast.

Additional enhancements planned for this summer will the ability for Freddie Mac customers to use Loan Prospector and the online platform to assess, price and deliver 20 additional rate and cap structures including ARMs with shorter lookback periods (on the first business day of the preceding month) and five new fully amortizing LIBOR-indexed ARMs with initial periods of 3-10 years, followed by 6-month adjustment periods.