It’s been awhile since we had one of our mortgage guest bloggers here, and there’s been a number of recent changes and news in the mortgage industry. Today we have David Gaffin from Greenpark Mortgage talking about rising borrower costs for those with less than stellar credit scores (i.e., the vast majority of folks). Tomorrow, we’ll have Brian Cav of Smarterborrowing.com talking about current interest rates.
Fannie To Increase Borrower Costs
David Gaffin, Greenpark Mortgage
Fannie Mae recently announced that it will be increasing the charges for Loans with Certain Credit Score/LTV Combinations and Loans with Subordinate Financing. Known as Loan Level Price Adjustment or LLPAs, the theory is that loans with higher loan to value ratios and borrowers with less than perfect credit scores represent a higher risk of default to Fannie Mae. As such, Fannie is charging these borrower’s a premium, which will translate into a higher interest rate or points to be paid at closing.
This is the latest attempt for Fannie and Freddie to become more profitable after the mortgage meltdown. Taxpayers have spent billions trying to keep these institutions afloat, and with 2011 expected to be another huge year in foreclosures, the losses will keep coming.
So what is the damage this time? Fannie and Freddie already had a hit of .75 points if you were buying a condominium with less than a 25% down payment. They have added a new hit for single family homes of at least .25 points regardless of credit score, if you are not putting down 25%. If your credit score is below 740, expect this adjustment to be higher.
These new adjustments will add at least .125% and possible more than.25% to the typical borrowers rate. If we are trying to improve the economy by allowing borrower’s to refinance to put more money in their pockets, this is not going to help.
Lending guidelines are already tight. By adding these new adjusters, the interest rates to borrower will rise and therefore they can afford less house or their refinancing opportunity is reduced.
Eventually it will smooth out, but borrower’s are already seeing the hits when they call for rate quotes. The common response is “I thought interest rates went down this week”, to which I reply, “They did but Fannie just added new risk hits to the pricing and therefore rates are higher.” Some people are skepital so I refer them to the Fannie link.
As the saying goes, “It is what it is,” and what it is just got more expensive.
File under Fannie and Freddie need more money.
For more information, contact David Gaffin at [email protected].
