Fannie Mae upped the ante for its adjustable-rate mortgage program by rolling out three new ARM products in the span of two weeks. And with ARMs now controlling nearly one-fourth of the origination market, Fannie lenders are likely to be quickly adding the products to their origination arsenals. Fannie Maes latest program, the 10-Year, Fixed-Period ARM, allows lenders to offer a new kind of variable rate loan where the initial interest rate is fixed for 10 years, and for the loans remaining 20 years, the interest rate and monthly payments will adjust annually based on the one-yearTreasury securities index. The program is available in a variety of initial rates and lifetime caps. They include: Three-year, fixed-period ARM, which has an annual interest rate cap of 2% and a lifetime cap of 6%; Five-year, fixed-period ARM, which also has an annual rate cap of 2%, but a lifetime cap of 5%; and Seven- and 10-year, fixed-period ARMs, which have a one- time initial adjustment cap of 5%. At the first adjustment, the interest rate may move up or down as much as 5%, and after that adjustment, interest rate charges are limited to 2% each year with a lifetime cap of 5%. The fixed-period ARM products also feature a conversion option that allows consumers to convert the ARM to a fixed-rate mortgage at specific adjustment datesspecifically, the first, second or third adjustment dates. The program also has a minimum down payment rule of 10% and are available for the purchase of single-unit principal residences or second homes, or units in Fannie Mae-approved condominiums. Fannie also announced it would launch other adjustable rate products, as well as discounts and premium pricing for seller/servicers that use the programs. They include: Six-month Libor ARM, which gives Fannies seller/servicers the option of offering 30-year adjustable rate mortgages with lower initial interest rates and built-in protections against wide swings in interest rate charges. The added interest rate protection is provided by allowing the adjustment to index every six months, but capping the increase at 1% for each adjustment. The program also allows home-owners to convert the ARM to a fixed-rate product at the second through 10th adjustment dates. Fannie said it will be indexed to the London Interbank Offered Rate as published in the Wall Street Journal. Previously, Fannie offered only a six-month Libor ARM tied to its own Fannie Mae Libor Index; ARM Discount/Premium Pricing is available through Fannies cash commitment window, and will apply to its one-year Treasury, six-month Libor and its fixed-period Treasury ARMs; Multifamily ARM, available through Fannies Delegated Underwriting and Servicing program, is Fannies first multifamily adjustable rate product. With terms of seven or 10 years, it will be adjusted annually and will have interest rate caps and floors of 2%, with a lifetime floor/cap of 4.5%. It will be indexed to one-year Treasury bills. The Multifamily ARMs will also require debt service coverage that will be calculated upon the lifetime cap interest ratewhich varies according to loan typedepending on which of the three available pricing tiers the loan is assigned to. Loan-to-value ratios will range from 55% to 80% of the loan amount.
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