BAD NEWS BAD TIMING – Fannie Mae Freddie Mac to Increase Loan Fees for Many!
BAD NEWS BAD TIMING – Fannie Mae Freddie Mac to Increase Loan Fees for Many!
THOSE WITH LESS THAN 720 FICO SCORE LOW DOWN PAYMENT TO PAY HIGHEST FEES!
Many home borrowers will be hit with "adverse market" surcharges on loans guaranteed by financially-strapped U.S. Mortgage Giants Fannie Mae and Freddie Mac.
Officially the increased fee structure takes effect on October 1st although many lenders are already figuring increased fees into their Truth in Lending Disclosure quotes. Fannie or Freddie guarantee roughly half of all mortgage loans written across the country.
Baseline fees for this national "adverse market" as they define it will increase from the current level of $250 per $100000 of mortgage loan amount to $500 per thousand borrowed. These fees can either be paid upfront or folded into the owed mortgage balance.
These fees will vary for individual borrowers however depending on their FICO Credit Score as well as their percentage of down payment on their new or re-financed home.
Those with a FICO Credit Score of less than 720 and a down payment short of 15% will pay an additional 1/4 point fee. Borrowers with more down but less than 30% and with a similarly-low FICO will pay one-half point additional.
Home buyers or those seeking to refinance with a credit score higher than 720 but with a sub-30% down payment or equity will be hit with a 1/4 point surcharge.
Here’s a crazy twist! Those with down payments below 20% but with plus-720 FICO Credit Scores will actually see their Fannie or Freddie surcharge DROP 1/4 of a point. Why?
In most cases low-down-payment borrowers now need to procure Private Mortgage Insurance which protects the lender in case of borrower default Many borrowers pay PMI in excess of 0.8% of the loan amount divided by 12 each month. The risk being covered by this costly Mortgage Insurance suggests a bit of a break in Fannie or Freddie costs.
PMI can allow those with lower down payments but excellent credit credentials to purchase a new home otherwise out of their reach.
In the old days – let’s say 2006 – those with FICO Credit Scores above 620 received better mortgage rate quotes. Borrowers with a plus-700 FICO were considered golden and offered the most attractive rates. Today with the massive increase in mortgage default across all credit score borrowers even those with scores above 720 may be subject to surcharge.
(The FICO Score is derived through a proprietary formula developed by the Fair Isaac Corporation and scores an individual’s credit history on a scale from 300 to 850 with lower scores indicating greater credit risk higher scores suggesting less risk.)
For more read Kenneth R. Harney’s article in last Sunday’s Chicago Tribune.
DEAN MOSS & DEAN’S TEAM CHICAGO
