Mortgage Loan

Higher market risk-based mortgage fees coming

(1/28/2011) Erate Exclusive - And you thought mortgage money was tight.

Dig deeper.

The cost of a home loan is about to get more expensive -- even if you have a high credit score. And for those with lower credit scores, mortgage money could get even tighter.

Fannie Mae is poised to increase the cost of something it calls an "loan-level price adjustment" and Freddie Mac is likewise increasing its "post settlement delivery fee."

These market risk-based fees will mean a new charge of $500 to $1,000 on a $200,000 mortgage for borrowers generally regarded as having solid credit and will cost even more for those lesser endowed with good credit.

Lenders must pay the new fees on loans they deliver to Freddie starting March 1 and to Fannie starting April 1, but some loan originators already may be tacking on the fees.

The market risk-based charges came to market in 2008, on the heels of the housing crash. The charge was created (as nasty yield spread premiums were being phased out) to help ease the risks of lending. The fees were levied as a penalty, largely against borrowers with lower credit scores. Most borrowers with near-perfect credit were exempt, even after prices rose in 2009.

Beginning in a few weeks, however, some borrowers with near-perfect credit will be charged the fees for the first time, borrowers with lower credit scores will pay higher fees.

Get a look at Fannie Mae's before and after risk-based fees, here.

Get a look at Freddie Mac's before and after risk-based fees, here.

And then, weep.

Borrowers should always examine their Good Faith Estimates and HUD-1 Settlement Statement documents carefully. The fees are supposed to be a one-time charge assessed when the mortgage is taken out but not as a mortgage rate add-on. Lenders can, however, raise their interest rate to cover the costs.

With a few exceptions, the fee right now doesn't apply to borrowers with credit scores of 720 or higher.

Under the new structure, generally:

• Borrowers with credit scores of 740 or greater will have to fork over a 0.25 percent fee, if the loan-to-value (LTV) ratio is higher than 75 percent. They will be exempt from the fee if the LTV is 75 percent or lower.

• Borrowers with scores in the 720-739 range will be subject to a 0.5 percent fee if their LTV ratio is higher than 75 percent or a 0.25 percent fee if the ratio is between 70.01 and 75 percent. They are exempt if their LTV ratio is 70 percent or lower.

• For lower credit scores, the charge continues to rise to as high as 3.25 percent, potentially pricing some borrowers out of the market. The 3.25 percent charge on a $200,000 loan amounts to an extra nasty $6,500.

Keep saving those pennies for a bigger-than-ever down payment.


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