Demand Rising for Fannie IO FRMs

Fannie Mae is starting to see more demand for its fixed-rate, interest-only product as interest rates on riskier adjustable-rate loans increase.Fannie's fixed-rate IO loans generated $2.9 billion in business in 2005, according to Fannie executive vice president Tom Lund. During the first two months of this year "we have already seen $3.7 billion in business," Mr. Lund told investors and equity analysts during a March 13 conference call. "So consumers are beginning to shift into fixed-rate but affordable products," he said. Mr. Lund also noted that the federal banking regulators' guidance on nontraditional mortgages "has had a positive impact on reining in some of the layering of risk" in the alternative-A market. The guidance issued in December warns against underwriting IO and payment-option ARMs with reduced documentation of income and simultaneous second loans.