Is it just me or is the linked “article” somewhat rambling and incoherent?

As far as what happened, yes Fannie & Freddie have offically stated that they will follow the Interagency Guidance on Nontraditional Mortgage Product Risk prescription. And it is mostly that – a general prescription. The only real bright-line requirement is that borrowers utilizing “non-traditional” mortgages (aka products where either principal or interest are deferred) must be qualified at the fully indexed rate with a fully amortizing payoff.

The result is intended to be the avoidence of unaffordable exploding ARMS. The initial tertiary result is credit contraction in the sense that the borrower can’t qualify for as much $$ in the fully-indexed fully amortizing scenario.

Of course, the guidance has no specific requirements for critical aspects such as debt-to-income ratios and stated income – leaving loopholes large enough to drive a truck through.

Nevertheless, I think we are and will continue to see credit contraction as the lending/real estate market evolves and reacts to the toxic waste loans that were made the last few years.