WASHINGTON – The transition the mortgage market is going through – from a refi to a purchase market – is creating a ripe environment for Fannie Mae's 40-year fixed rate mortgage. The concept of purchasing 40-year mortgages is not new to Fannie Mae. Mercy Jimenez, SVP for Single Family Mortgage Business for Fannie Mae's National Business Center said the housing Government-Sponsored Enterprise has purchased these products for several years and actually began piloting a customized product for credit unions last year to learn if it met members' needs. But she credits the product's increasing appeal to changing market conditions. "The middle of last year we were at the peak of the second refi boom so people were still very refi focused," says Jimenez. "That's tailed off, so lenders are now naturally looking at a purchase market and how to serve borrowers differently. At times like these, all products that have been on the shelf for a while get pulled off." Twenty-one credit unions have been part of the pilot test group for the GSE's 40-year mortgage, but they're not the only credit unions offering this type of product – a handful are offering it on their own. CU Companies, for example, a Minnesota-based multiple-owned mortgage CUSO came out with a 40-year, fixed-rate product in August. But the appeal of the product is the same – low monthly payments. There are many reasons a borrower would be attracted to a 40-year mortgage, said Jimenez. The most obvious is that by elongating the payment period because of the longer term of the loan, it can make it more cost affordable for a first time homebuyer to buy their home. Even borrowers who have owned homes and are relocating into higher cost areas for various personal reasons could consider using a 40-year mortgage, she offers. Jimenez stresses that the most important thing to remember is "a 40-year mortgage, like other products, is not right for everyone. The lender needs to look at the borrower's goal in determining the most suitable product for them. "If the borrower wants to pay down their mortgage as quickly as possible and get out of mortgage debt, then they should look at a 10- or 15-year loan," said Jimenez, adding that the average life of a mortgage is five to seven years, "so even if the borrower takes out a 15- or 30-year loan, the chances are good they're not going to stay in the home for the life of the loan." Jimenez also stresses that just because the 40-year mortgage means lower monthly and more affordable mortgage payments, "Fannie Mae has not lightened up on its underwriting standards. At the top of the priority list is still the borrower's ability to pay the loan, regardless of the size of the mortgage. We don't succeed if we help someone get into their home but then they can't stay because of the cost." Jimenez opines that Fannie Mae's 40-year fixed rate mortgage will prove to be a good match for credit unions because "they're highly focused on serving the best interest of members and spend more time with borrowers on the types of products that are most suitable for them. Credit unions are also well positioned to use this product to serve the underserved." In fact, Teachers FCU, Farmingville, N.Y. began offering the product to its members about four months ago. SVP Nancy Orlando said the credit union has so far received about 10 applications for the 40-year mortgage and already closed around three. Orlando said the credit union decided to offer the mortgage product to its members because "we like to offer our members selections of various products that best meet their needs." Orlando said she doesn't see a downside to the length of the term of the loan and neither do members. She shakes off concerns expressed by some mortgage experts that the 40-year mortgage opens the door for borrowers to buy more home than they can afford to maintain. "Mostly our members are looking at a payment that allows them to purchase a new home," she said. `People are more conscious of the money they have to work with and with making their monthly payments more manageable." Jimenez said Fannie Mae isn't sure when it will end the pilot test of its 40-year mortgage. "We're going to play it by ear, we want to make sure there's enough traction on values for us to make an assessment," she said. She added that sometime next year Fannie Mae will determine whether to expand or change the usage of the product. "There could be a lot of steps," she said. "Until we have a critical mass of loans we can't predict what the next step will be." -

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