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Reminder: New ARMs Caps and Qualification Requirements Effective July 1

As a reminder, the revised Initial and Periodic Caps and qualification requirements for certain adjustable rate mortgages (ARMs) are effective for mortgages with settlement dates on or after July 1, 2013.  Please make plans to manage your pipelines accordingly.

As announced in October 2012 in Single-Family Seller/Servicer Guide (Guide) Bulletin 2012-21, for ARMs with Initial Periods of five years or less:

  • We are limiting the Initial Caps and Periodic Caps to 2 percent or less.
  • The borrower must be qualified at the greater of the note rate plus 2 percent or the fully indexed rate. This revised requirement also applies to ARMs that are Financed Permanent Buydown Mortgages and ARMs with temporary subsidy buydown plans.

ARMs that do not meet these new requirements will not be eligible for purchase on or after July 1, 2013.

These changes are intended to minimize the risk of payment shock associated with increases in monthly payments after the initial period and to help ensure borrowers are able to afford their monthly payments should interest rates increase.

There are no changes to Freddie Mac’s ARM servicing requirements as a result of these new cap requirements.

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