Loan-Level Pricing Adjustments
It’s Semi-Official – New Conforming Mortgage Fees Go Into Effect Monday
January 9, 2009 by James K Barath, CMPS · Leave a Comment
Even though its effective date is April 1, 2009, mortgage applicants should start seeing Fannie Mae’s new fee structure from lenders beginning this Monday, January 12.
The reason why Fannie Mae’s mandatory loan fees are hitting lender pricing so far in advance is because lenders can take up to 30 days to package and sell a loan to Fannie Mae post-closing. In effect, this moves the April 1 start date to March 1.
Then, figuring that March 1 is roughly 45 days from now and that 45 days is a normal window on which to close on a home or on a refinance, the start date again pushes back, this time to January 15.
Given lenders’ typical timeframe to close, fund, and sell a loan to Fannie Mae, in other words, it’s normal that pricing reflects the fee changes two-and-a-half months in advance. Homebuyers and would-be refinancers would do well to take notice.
If you are floating a mortgage rate today — or shopping for one — consider locking it in before the close of business. Effective Monday, any number of traits in your home loan could increase your closing costs:
- Your credit score
- Your downpayment / equity percentage
- Your home’s property type
- Your reason for wanting a mortgage
- Your loan type
For a complete look at Fannie Mae’s new, mandated loan fees, visit the Fannie Mae web site. If you have trouble interpreting the worksheet, call or email me and we can talk about it together.
Loan-Level Pricing Adjustments
New Fannie Mae Loan Fees Target Condo Buyers & Others
January 8, 2009 by James K Barath, CMPS · Leave a Comment
When conforming mortgages started defaulting en masse in late-2007, mortgage guarantor Fannie Mae created a loss-offsetting, fee-generating scheme dubbed “loan-level pricing adjustments”.
The concept was basic: For mortgage applicants with high-risk profiles, collect up-front payments to offset potential long-term losses.
Similar to the auto insurance model in which younger drivers pay higher premiums, the riskier the applicant, the higher the fee.
At the inception of the program, Fannie Mae defined “risk” as a combination of borrower credit score and home equity percentage. In general, lower FICOs and higher LTVs paid more costs.
Effective April 1, however, Fannie Mae’s definition of risk is expanded. By a lot. Fannie Mae’s new loan-level fees now impact any conforming mortgage that meets any of the following criteria, with the exception of fixed rate loans of 15 years or less.
- Up to 0.75% fee: Secured by a condo/co-op with less than 25% equity
- Up to 0.50% fee: Features a junior mortgage (i.e. HELOC, HELOAN)
- Up to 1.00% fee: Features interest only payment options
- Up to 1.00% fee: Secured to a 2-unit property
- Up to 3.00% fee: Is designated as “cash out”
Each 1 percent in fees equals 1 percent of the borrowed amount. Therefore, a condo buyer with a $200,000 first mortgage and a $25,000 line of credit is subject to a mandatory 1.25% charge of $2,500, due at closing.
However, it doesn’t stop there. Fannie Mae has also adjusted its original FICO-LTV matrix so that nearly every applicant — irrespective of credit score — will face higher closing costs on their home loan.
Mortgage rates may be falling, but the cost of financing a home is rising.
Fannie Mae’s latest announcement is its fifth risk-based pricing update in the last 15 months. It’s likely it won’t be the last, either. Therefore, if you’re torn between to buy a home now or later, consider that the cost of waiting may outweigh the benefits of falling prices or falling rates.
