Eliminating Previously Announced Increase of Market Condition Delivery Fee; Previewing New Conforming Loan Limits and Updates to Credit and PricingOctober 3, 2008 Advisory E-mail Message to Seller/Servicers
Today, we are announcing several changes to increase affordability for homebuyers and liquidity for lenders that provide some relief from the challenges in the current market environment. First, we will not implement the 25 basis point increase in our Market Condition postsettlement delivery fee, which we announced in August and was scheduled to take effect November 7, 2008.
Second, we are previewing upcoming requirements for mortgages with higher conforming loan limits in certain high-cost areas, which we've termed "super conforming" mortgages. To make credit more broadly available and lower financing costs, the requirements for these mortgages will include an array of eligible products and multiple sale path options that will be available to all customers through our Single-Family Seller/Servicer Guide (Guide).
In addition, we are outlining other planned pricing and credit changes. We remain focused on providing credit and pricing terms that are prudent and largely applicable in all market conditions. Some of these changes are based on the continuing performance deterioration of certain mortgages originated in early 2008. These changes also reinforce our ongoing efforts to provide access to mortgage credit and support sustainable homeownership.
We are providing you with the following preliminary information so you can begin to prepare for these changes, which will be finalized and announced in a mid-October Bulletin.
Elimination of Previously Announced Increase to Market Condition Delivery Fee
In order to help stimulate the market, we will not implement the Market Condition delivery fee rate increase of 25 basis points announced in our August 8 Guide Bulletin. The existing Market Condition delivery fee rate of 25 basis points, in addition to all other applicable delivery fees, will continue to apply to all mortgages delivered to Freddie Mac.Preview of Super Conforming Loan Limits
The Housing and Economic Recovery Act of 2008 increases Freddie Mac’s conforming loan limits in certain high-cost areas to the lesser of 115 percent of the area median home price or 150 percent of the conforming loan limit, currently $625,500 for 1-unit properties. In addition, the loan limits for 2- to 4-unit properties will remain higher. We are working on finalizing certain definitions to be used for eligibility and will communicate these details as soon as they are available.Super conforming mortgages with note dates on and after October 1, 2008, will be eligible for Freddie Mac settlements on and after January 2, 2009. These mortgages will be available through the Guide for all Sellers.
Super conforming mortgages will have additional credit terms and postsettlement delivery fees for certain mortgages to reflect the additional risk of these mortgages. Mortgages eligible for sale to Freddie Mac as super conforming mortgages will include:
- Purchase transaction, no cash-out and cash-out refinance mortgages.
- Mortgages secured by 1- to 4-unit primary residences, second homes and 1- to 4-unit investment properties.
- 15-, 20-, and 30-year fixed-rate mortgages.
- 5/1, 7/1, and 10/1 ARMs.
- Initial Interest® fixed-rate mortgages and Initial Interest 5/1, 7/1, and 10/1 ARMs with 10-year interest-only payment periods.
Super conforming mortgages with loan amounts up to $1 million must be submitted to Loan Prospector®. If the mortgage receives an Accept or A-minus assessment, the borrower’s credit reputation is acceptable. However, super conforming mortgages are not eligible for Loan Prospector Accept Plus documentation. For Caution Mortgages and for loan amounts greater than $1 million, manual underwriting is required. For all super conforming mortgages, the maximum debt-to-income ratio is 45 percent.
We intend to support a broad set of sale options for these mortgages, including Guarantor, Cash and MultiLender sale paths, and bulk transaction capabilities. TBA eligible pools may include super conforming mortgages provided that the aggregate unpaid principal balance of super conforming mortgages does not exceed 10 percent of the unpaid principal balance of all mortgages in the applicable pool.
Review additional super conforming mortgage requirements and pricing information on our Web site.
Additional Changes to Delivery Fee Structures and Fee Rates
We will also be revising Guide Exhibit 19, Postsettlement Delivery Fees, in our upcoming Guide Bulletin to reflect increases to certain postsettlement delivery fee rates for Initial Interest® Mortgages, the Number of Units fee rates for 2-unit properties, and the structure and fee rates for mortgages with secondary financing, effective for mortgages with Freddie Mac settlement dates on and after January 2, 2009. The delivery fee rate changes for the Number of Units fee do not apply to Home Possible® Mortgages. The new delivery fee rate tables are shown below.
INITIAL INTEREST MORTGAGES Effective for Settlements on or After January 2, 2009 |
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|---|---|---|---|---|
| Product | LTV Ratios |
|||
| < 90% | > 90% | |||
| All Eligible Fixed-Rate Mortgage Product | 1.00% | 1.25% | ||
| All Eligible Adjustable-Rate Mortgage Product | No Fee | 0.25% | ||
NUMBER OF UNITS Effective for Settlements on or After January 2, 2009 |
||||||||
|---|---|---|---|---|---|---|---|---|
| Product | Number of Units | LTV Ratios |
||||||
< 60% |
> 60% & < 70% |
> 70% & < 75% |
> 75% & < 80% |
> 80% & < 90% |
> 90% & < 95% |
> 95% |
||
| Mortgages other than Home Possible Mortgages - All Eligible Product | 2 | 1.00% | 1.00% | 1.00% | 1.00% | 1.00% | 1.00% | Not Eligible |
| 3-4 | 1.00% | 1.00% | 1.00% | 1.00% | Not Eligible |
|||
MORTGAGES WITH SECONDARY FINANCING Effective for Settlements on or After January 2, 2009 |
|||||||
|---|---|---|---|---|---|---|---|
| Product | Financing Structure | LTV Ratios | TLTV Ratios | Non-Initial Interest Mortgages | Initial Interest Mortgages | ||
| Credit Score | Credit Score | ||||||
| < 720 | > 720 | < 720 | > 720 | ||||
| All Eligible Product | 75/20/5 | > 65% & < 75% | > 90% & < 95% | 0.50% | 0.25% | 0.75% | 0.50% |
| 80/10/10 | > 75% & < 80% | > 76% & < 90% | 0.25% | 0.00% | 0.50% | 0.25% | |
| 80/15/5 | > 75% & < 80% | > 90% & < 95% | 0.50% | 0.25% | 0.75% | 0.50% | |
| 90/5/5 | > 80% & < 90% | > 81% & < 95% | 1.00% | 0.50% | 1.25% | 0.75% | |
Changes to Credit Requirements
We will be revising our credit and underwriting requirements effective for all mortgages with Freddie Mac settlement dates on and after January 2, 2009, as follows:- Updating our requirements for manually underwritten mortgages. We will require a minimum Indicator Score for manually underwritten mortgages for the following combinations of purpose, LTV/TLTV/HTLTV ratio, number of units and occupancy type:
Minimum Indicator Scores For Manually Underwritten Confroming Mortgages
PURCHASE AND "NO CASH-OUT" REFINANCEProperty Type Minimum Indicator Score
– Max. HTLTV > 75%Minimum Indicator Score
– Max. HTLTV < 75%Second Home 720 620 Investment Property - 1 unit 720 620 Investment Property - 2-4 unit 720 660 "CASH-OUT" REFINANCEProperty Type Minimum Indicator Score
– Max. HTLTV > 70%Minimum Indicator Score
– Max. HTLTV < 70%Primary Residence - 1-unit 720 620 Primary Residence - 2-4 units 720 680 Second Home and 1-4 unit Investment Property 720 700
Please note that these minimum Indicator Score requirements may be different for super conforming mortgages. Please view our requirements for super conforming mortgages. - Reducing our maximum LTV/TLTV/HTLTV ratio requirements for the following mortgages:
- Second home mortgages
- 2-unit property mortgages
- Cash-out and no cash-out investment property mortgages
Additionally, we are reducing the maximum LTV/TLTV/HTLTV ratio requirements for Condominium Unit Mortgages secured by properties in Florida when the Seller uses a streamlined project review. We are making this change in order to address the need for increased project due diligence, while also maintaining the availability of financing.
Freddie Mac-owned no cash-out refinance mortgages secured by second homes and 2-unit properties are exempt from these reductions when the new mortgage is not paying off subordinate financing.
We are also reducing the maximum permitted HTLTV ratio requirements to equal the maximum permitted TLTV ratio requirements for all mortgages. You may view the new maximum LTV/TLTV/HTLTV ratio requirements on our Web site. - Updating our requirements for Seasoned Mortgages to require mortgages sold more than 365 days after the note date to be sold through the bulk sales path. These mortgages will no longer be eligible for sale through flow sales paths.
- Updating our requirements for all Streamlined Refinance Mortgages. Regardless of whether Freddie Mac owns the mortgage being refinanced, we will no longer allow the new mortgage to pay off subordinate financing.
- Modifying our appraisal requirements:
- For flow purchases, requiring an appraisal update for mortgages delivered more than 120 days after the note date. The appraisal update must be dated within 60 days of delivery. If an appraisal update is not obtained or the appraisal update indicates a decline in value, the mortgage is only eligible for sale through our bulk sales path.
- For Streamlined Refinance Mortgages where Freddie Mac does not own the mortgage being refinanced, a new appraisal will be required.
- For Mortgages for Newly Constructed Homes, Seller-owned Modified Mortgages, and Seller-owned Converted Mortgages by:
- Requiring an appraisal update dated within 60 days of the delivery date or Freddie Mac settlement date, as applicable, for Newly Built Home Mortgages, Construction Conversion Mortgages and Renovation Mortgages.
- Requiring an appraisal update or new exterior appraisal dated within 60 days of the delivery date or Freddie Mac settlement date, as applicable, for Seller-owned Modified Mortgages and Seller-owned Converted Mortgages.
Other Important Information
Please note that the changes to our requirements described in this e-mail are not final until they are published in an upcoming Guide Bulletin. We are providing this information to you now to allow you as much lead-time as possible to begin preparing for these changes. There will be additional details and information in our upcoming Bulletin, including additional information about Loan Prospector assessments and delivery requirements. We urge you to carefully review the Bulletin when it is available for our final requirements on these announced changes, as well as any additional modifications to our requirements that may be announced at that time.
As always, contact your Freddie Mac representative to discuss these changes.