“Timely Rewards Payment Option”–Fannie Mae’s Best Kept Secret

Sub-prime mortgages have largely evaporated. What remains are a few offerings in the 10–11% range with nasty prepayment penalties and the potential for future rate resets.

So what do you do if you or your client have sub-prime credit?

Try Fannie Mae’s DU engine. Although most lenders think of Fannie/Freddie as prime credit only, both offer approvals for lower credit grades. Even with a credit score in the high 500’s, you may be able to secure a Expanded Level I, II, or III approval. While these do carry higher rates—7.5% to 8.5%— you can at least secure a safe, standard 30 year fixed rate loan that doesn’t have a prepayment penalty or nasty reset two years down the road. And, 100% financing is available!

And here’s an added bonus. Fannie Mae offers a Timely Rewards Payment Option. If a borrower demonstrates a “Good Payment History”, the lender will lower the rate with fees or refinancing. The following is taken directly from the Timely Payment Rewards Disclosure and Note Addendum:

“…if on any one of the second third, or fourth anniversaries of the scheduled due date of the first full installment payment due under the Note (each, an “Anniversary Date”) Borrower has demonstrated a Good Payment History, lender agrees to decrease the Note Rate by ____percentage point (__.__%).

In other words, in years 2, 3, or 4 of the loan the lender will automatically reduce the rate by 1/2 to 1 full percentage point if the borrower has a good payment history. So what constitutes a good payment history?

Borrower will be deemed to have demonstrated a “Good Payment History” if Borrower: (a) has made each of the most recent 24 consecutive monthly payments under the Note and Security Instrument before the date the next payment was due; and (b) has never been late by 3 months or more in making any monthly payment due under the Note.

Pretty simple eh? Now, here’s the catch. Not all lenders can do this. Some of the biggest don’t offer it.

Just one more advantage to working with a knowledgeable mortgage broker, as opposed to a bank employee.

Can your lender do this?

Does she keep you informed about programs like this that will help you or your client resolve a challenge?

Call or email me if you need expert advice on a mortgage. Or apply for your loan here.