The Federal National Mortgage Association has announced that it will begin enforcing the due-on-sale provision in conventional mortages originated on or after Oct. 1 for loans owned by the corporation.
When such mortgages are assumed, FNMA will require both a review of the assumptor's credit and an adjustment to market of the mortgage interest rate. The interest rate will be adjusted to the weighted average yield of all accepted bids in the corporation's most recent free market system auction for conventional mortgages.
In annoucing its policy change, the corporation noted that assumptions increase average mortgage life. Without a mortgage rate adjustment, this increases the likelihood that FNMA will have to refund older, lower interest rate mortgages with borrowed money costing more than the yield provided by the mortgage loans.
Enforcement of the due-on-sale provision, where permitted by state law, is expected to produce a more realistic relation between return on mortages and most of the money to finance them.
The Federal National Mortgage Association is a federally chartered, shareholder-owned and privately managed corporation and is the nation's largest single supplier of home mortgage funds. FNMA purchases mortgage loans from local lenders, thereby replenishing those institutions' supply of mortgage money.