In an announcement on February 25th, Freddie Mac announced that as of September 1, they will cease purchasing and securitizing interest only mortgages.
We can expect that lenders will take Freddie Mac’s Interest First product line off the market far sooner than that. It is also a reasonable conclusion to reach that Fannie Mae will follow suit (especially in the wake of their recent 15.3 billion dollar request for capital).
It was not explained why they did this but, according to Mortgage Servicing News, they have only been able to successfully modify 0.2% of its interest only portfolio (oops) and when combined with Alt-A loans, they represent 40% of Freddie Mac’s 2009 defaults. Then again, it might be because managing the qualification criteria on loans of this type was never handled well and now consumers hate them.
I suppose that to some extent, Temporary Buydowns will make a reemergence and interest only loans will still probably maintain a place in the non agency backed jumbo market. Ultimately the contraction of loan programs will cease and the expansion of loan programs will begin again. This is what interests me. What will they look like because they won’t be simple resurrections of old loan programs. They’re history.
I imagine that the foundation block of future product expansion will be a principal and interest, fully amortizing loan and that we’ll see a lot of variations on that theme. For instance:
- Well priced fixed period arms on 40 year amortizations
- Well priced fixed period arms on 50 year amortizations
- Well priced fixed period arms on 100 year amortizations (I know it sounds funny but they work in Japan)
- Well priced 40 year fixed
- Well priced 50 year fixed
Yeah, it looks pretty bland but I think these are the kinds of things that represent the future of innovation in mortgage products.
There won’t likely be any innovations in file documentation. I actually saw an advertisement for stated loans yesterday and thought I’d fallen into a time warp. Where it hasn’t happened already, that will be banned nationwide. Perhaps thing might loosen up down the road and investors will take 4506t’s and paystubs in lieu of W2’s, paystubs and tax transcripts. And hopefully, eSigned closings and lending disclosures will become more common than not. But, it’s fair to assume that most documentation innovation will come from technology rather than substantive changes.
But I certainly have no crystal ball or monopoly on soothsaying, what do you think will be in store?
Comments(6)