Freddie Mac introduced a new suite of mortgage products today that gives lenders more tools to meet the increasingly sophisticated needs of both purchase and refinance borrowers. At the Mortgage Bankers Association National Secondary Market Conference & Expo here, Freddie Mac announced that it will purchase and securitize a range of Initial Interest mortgages that offer more financial flexibility to borrowers. Freddie Mac also announced today 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. (See Fact Sheet attached). Initial Interest mortgages will be available for assessment through Freddie Mac’s Loan Prospector® automated underwriting system beginning July 1.

“Borrowers today have a range of financial options, and this product gives them another tool to help them best manage their financial situation,” said David H. Stevens, senior vice president of Mortgage Sourcing at Freddie Mac. “Initial Interest offers mortgage lenders a range of options to build a robust product line and increase origination volume, and a competitive secondary market outlet if they’re already originating these types of mortgages.”

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.

Weighted Average Coupon ARM Cash

Freddie Mac also announced today a new Weighted Average Coupon ARM Cash execution for lenders using its web-based selling system. The selling system provides an integrated process from pricing to settlement, improving 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.

More information on the selling system can be found at www.freddiemac.com/sell/secmktg/sellingloans.htm . More information about Initial Interest mortgages will be available to lenders and the industry in mid-May.

Freddie Mac is a stockholder-owned corporation established by Congress in support of homeownership and rental housing. Freddie Mac purchases single-family and multifamily residential mortgages and mortgage-related securities, which it finances primarily by issuing mortgage passthrough securities and debt instruments in the capital markets. Over the years, Freddie Mac has opened doors for one in six homebuyers and more than two million renters in America.

Fact Sheet

With Initial Interest, borrowers make monthly interest only payments for the initial interest only period, then principal and interest payments for the remainder of the loan term. Loans fully amortize by the end of a 30-year term. Here’s what Freddie Mac will offer to purchase:

Initial Interest Fixed-Rate Mortgages:

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Initial Interest 10/20 Fixed-rate Mortgage - a 30-year fixed-rate mortgage with a 10-year interest-only period followed by a 20-year fully amortizing period.
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Initial Interest 15/15 Fixed-rate Mortgage - a 30-year fixed-rate mortgage with a 15-year interest-only period followed by a 15-year fully amortizing period.

Initial Interest ARMs:

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Initial Interest 3/1 ARM - a 1-Year Constant Maturity Treasury (CMT) or LIBOR-indexed ARM with a 3-year interest-only period followed by a 27-year fully amortizing adjustable-rate period. 2/2/6 cap structure.
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Initial Interest 5/1 ARM - a CMT or LIBOR-indexed ARM with a 5-year interest-only period followed by a 25-year fully amortizing adjustable-rate period. 2/2/6 and 5/2/6 cap structure.
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Initial Interest 7/1 ARM - a CMT or LIBOR-indexed ARM with a 7-year interest-only period followed by a 23-year fully amortizing adjustable-rate period. 5/2/6 cap structure.
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Initial Interest 10/1 ARM - a CMT or LIBOR-indexed ARM with a 10- year interest-only period followed by a 20-year fully amortizing adjustable-rate period. 5/2/6 cap structure.

Source Freddie Mac

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