Fannie Mae is jacking up mortgage fees

Just when you thought that the housing market couldn’t get any tougher, Fannie Mae(FNMA) and Freddie Mac(FHLMC) have decided to increase mortgage cost for most people looking to purchase or refinance a home in 2011.  These are the same companies the tout promoting homeownership and who received huge sums of money from the government to bail them out.

The memo which was sent to all lenders that sell loans to FNMA on December 23, 2011 outlines the increases that are effective for loans that the company purchases on or after April 1, 2011.  Sorry no April fool’s joke here.  Most lenders will begin pricing the increase in immediately as they tend to bundle loans up and sell them in pools to FNMA at a future date.

Freddie Mac had previously announced similar changes late last year to the chagrin of the real estate and housing industry.

Besides HUD and their FHA loans, FNMA and FHLMC guarantee about two-thirds of the mortgage origination business.  They typically buy mortgages from Banks and other originators and package them up into Mortgage Backed Securities (MBS) and sell them to Investors with guarantees on the performance of the MBS pools.  In a stable market all tends to work well.  However, in the market turmoil over the last few years many of their forecasts were thrown out the window and they each suffered huge losses.

The struggling housing market has been propped up with low interest rates and some government incentives.  Now those looking for low rates will find that things are not what is advertised.

A borrower looking to purchase a $350,000 home with a 20% down payment and a FICO credit score north of 740  will either pay a fee of .25% of the loan amount or most likely an extra .125% adjusted to their rate.  Thus they will pay either $700.00 in higher closing cost or an extra $5,297 more in interest over the life of the loan.

So your credit score isn’t quite that high?  You’re still a good borrower with a credit score between 700 and 720.  Well FNMA doesn’t think so.  They see you as a higher risk and slap you with a 1.0% upfront fee or probably about .5% added to your interest rate.  For those with a credit score below 660 and only 15% down payment the fee is a whopping 3.25%

Since there are thousands of people who have had to go through a foreclosure, Deed in Lieu of Foreclosure or a Short sale, there have been some changes here as well.  If you have had any of these you are probably limited to the following:

Eligibility

• 2 Years    -    maximum 80% Loan to Value  — you need to put 20% down
• 4 Years    -    maximum 90% Loan to Value
• 7 Years    -    You get to follow the regular guidelines

While there are exceptions to this, don’t get your hopes up as very few, if any, underwrites are going to stick their neck out.