My New Blog

Fannie Mae Rules for Seller-Held Seconds:

• No negative amortization
• No balloon within 5 years
• Market rate of interest – must be within 2% of current standard rates for 2nd mortgages
• No wrap-around with fist mortgage debt
• Must fully amortize and have regular payments
• No prepayment penalty
• Cannot restrict pre-payment
• Must qualify with payment in the housing ratio
• Variable payment mortgages okay as long as they comply with all of the above and the payment remains the same for a 12-month time period.

Freddie Mac Rules for Seller-Held Seconds:

• No negative amortization
• No balloon with 5 years
• Regular monthly payments
• Must qualify with payment in housing ratio
• Must disclose terms to appraiser, including who is going to hold the 2nd mortgage
• Rate on 1st mortgage must be fixed rate loan; rate on 2nd can be ARM or buy down
• Variable rate loans ok if the payment remains constant for 12 months over the life of the loan and the rate cannot increase more than 1% each 12-month time period.