At the Mortgage Bankers Association National Secondary Market Conference & Expo in Washington, D.C. Monday, Freddie Mac announced that it will purchase and securitize a range of Initial Interest mortgages that aim to offer more financial flexibility to borrowers. Freddie Mac also announced a new Weighted Average Coupon (WAC) Adjustable-Rate Mortgage (ARM) Cash execution for lenders using its new Web-based selling system.
The new Initial Interest products include several constant maturity treasury (CMT) and LIBOR-indexed ARMs and two fixed-rate mortgages, where the initial loan payments are only interest. Fully amortizing principal and interest payments would begin at the expiration of the initial interest only period. Initial Interest mortgages will be available for assessment through Freddie Mac’s Loan Prospector automated underwriting system beginning July 1.
Lenders can choose from a variety of sale executions to deliver Initial Interest mortgages to Freddie Mac beginning July 1, including our WAC ARM Guarantor execution, with a reduced $1,000 minimum commitment for Initial Interest ARMs only, and traditional fixed-rate Guarantor paths. In addition, lenders originating fixed-rate Initial Interest mortgages can also take advantage of the $1,000 minimum commitment feature that is part of our MultiLender Swap execution.
Freddie Mac’s Initial Interest product enables borrowers to make lower interest-only monthly payments during the initial interest-only period, but still gives them the opportunity to pay down principal. In fact, the monthly payment during the initial interest-only period will adjust each time the borrower makes a principal payment. With a traditional mortgage, when the borrower makes a principal prepayment, it lowers the principal balance amount owed but does not change the monthly payment amount unless the borrower requests a change. The Initial Interest mortgage still becomes a fully amortizing mortgage after the initial interest-only period even if a borrower makes early principal payments.
For lenders using its Web-based selling system, Freddie Mac’s new Weighted Average Coupon ARM Cash execution provides an integrated process from pricing to settlement, aiming to improve a lender’s ability to manage its pipeline more efficiently on one system.
The WAC ARM cash execution permits eligible ARMs with different note rates, margins, servicing spreads, months to adjustment, and life caps to be delivered together under a single contract, subject to tolerances established by the selling system. Previously Freddie Mac only offered lenders a WAC ARM execution through its Guarantor program.
Freddie Mac announced enhancements to its selling system earlier this month that include a cash execution for best efforts and mandatory contracts for both servicing-retained and servicing-released mortgages. A Guarantor Swap pilot for the selling system will begin this summer.
Freddie Mac is a stockholder-owned corporation that purchases single-family and multifamily residential mortgages and mortgage-related securities.
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