Is this industry standard &/or a Fannie / Freddie requirement? If loans are not in eighths are they marketable & in compliance?

Thanks.

It is an industry standard only because Fannie and Freddie say that's how they purchase loans. If you portfolio, it's your business (unless state law says otherwise).

Would someone please direct me to the FNMA’s Servicer Guide to reflect where this is in writing so that I can share it with Sr. Management (re: How Servicers should handle 1/8 rounding at the first Change Date?)? I don't know if the Servicer Guide is that specific but hopefully there is something in writing that I can provide.

Thank you in advance.

First, it should be very clearly disclosed within your notes. If your notes do not support the rounding of the interest rate, you should not be doing it.

For Fannie Mae guidance - look here:

IV, Chapter 2: Interest Rate Changes (09/30/05)

A number of factors come into play in establishing the new interest rate for an adjustable-rate mortgage on each scheduled interest rate change date—the index on which the rate is to be based, the "lookback" period, any applicable interest rate change limitations, the mortgage margin, any specified interest rate rounding technique, and the applicability of the Servicemembers Civil Relief Act.

For all standard Fannie Mae ARM plans:

• the mortgage interest rate may never decrease to less than the ARM’s margin, regardless of any downward interest rate cap;

• there is no lifetime interest rate floor other than the ARM’s margin, and

• to be pooled as a standard Fannie Mae ARM plan without a special disclosure, the ARM must (1) have a monthly payment that is due on the first day of the month, (2) have an original maturity no longer than 30 years, and (3) provide for calculation of the new interest rate by rounding the sum of the index plus the ARM’s margin to the nearest one-eighth of one percentage point.

The interest adjustment interval and the applicable index for each of our standard plans and the most common negotiated plans are described in Exhibit 1.

Thank you so much...Do you have an Internet link I can use for the source?

Go to AllRegs: http://www.allregs.com/efnma/

Search the servicing guide for "rounding"