Fannie Mae to make qualifying for interest-only loans tougher

[FarCenter]

By Les Christie, staff writerApril 30, 2010: 5:53 PM ET

NEW YORK (CNNMoney.com) -- Fannie Mae, the government-backed mortgage giant, announced Friday that it will tighten lending requirements for the interest-only loans and adjustable rate mortgages (ARMs) it backs.

To get a Fannie Mae-backed interest-only mortgage, for example, homebuyers will have to make down payments of 30% of the sale price.

For adjustable rate mortgages, Fannie will only buy those underwritten to ensure that borrowers could still afford payments even if their interest rates reset to the higher of either 1) the loan's initial interest rate plus two percentage points or 2) the maximum the interest rate the loan can rise to, known in the industry as the cap rate.

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Fannie Mae (FNM, Fortune 500) will also demand that borrowers of interest-only loans have credit scores of at least 720 and sufficient cash cushions to be able to continue mortgage payments and other housing expenses for 24 months.

Meanwhile, Fannie says it will stop funding so-called balloon mortgages. With these, borrowers pay at a rate lower initially than the nominal interest rate on their mortgages. The difference between the two builds up every month and has to be repaid with one huge payment at a specified date.

<SNIP>http://money.cnn.com/2010/04/30/real_estate/Fannie_okays_interest_only_loans/

[mwooldri]

1. Good.

Interest-only loans... Eurgh.

Balloon loans - double over and puke badly.

Adjustable rate mortgage - vomit profusely. And all over again whilst defecating and urinating in my clothing at the same time.

Only "Good Mortgage" is a X year FIXED mortgage. Coupled with some kind of employment insurance so that if you're out of a job at least the house gets paid. I don't know anything about private unemployment insurance - if it exists, etc - but when I get a mortgage (if I get a mortgage) I want to make sure I can stay in that house, and not have it sold underneath me.

Mark.