Home : Blogs : Rey Gallegos Mortgage Loan Officer Las Vegas, NV : The Mortgage Insider with Rey Gallegos

I blame you for the mess we are in...

Last month Fannie Mae and Freddie Mac announced new loan level adjustments. They are moving to more of a risk based pricing model, no doubt in response to recoup losses and mitigate further losses. These adjustments will mostly be based on FICO score. Before to qualify for Fannie or Freddie conforming loan, you needed a 620+ FICO to get the standard conforming rate. Now their will be additional loan level pricing adjustments for FICO scores below 680. If the Loan-to-Value (LTV) is greater than 70%, the pricing adjustments are as follows:

Fico 620 - 639 add 1.75 to discount
Fico 640 - 659 add 1.25 to discount
Fico 660 - 679 add .750 to discount

This new risked base pricing will be on Conforming Fixed (Greater than 15 year) and ARM programs. Other Fannie/Freddie programs like the My Community Mortgage (MCM), Expanded Approvals (Levels 1, 2 or 3), Home Possible, and Jumbo loan products will not be affected. There are also other changes for two-unit properties and properties with subordinate financing but I don't believe those will have the impact that the above changes will have.

Some banks have already adopted these changes while others have yet to announce. Of all of the changes that are going on in the Mortgage Market, I believe this will have the most significant impact. This is like double dipping on the risk assessment. Conforming loans have always been risk based. When you qualified for a conforming loan you also have to get Mortgage Insurance if your LTV is greater than 80%. This Mortgage Insurance policy was written with a factor that is based on the amount of risk each particular loan scenario had. For instance, a borrower would have to pay a higher MI rate if they had an LTV of 95% versus 87%. More risk, higher rate!

I wouldn't have such a problem with these changes if we sure that the Mortgage Insurance Companies won't raise their MI rates and/or start a similar FICO driven risk based model. That seems to be the next logical step.

The bottom line is that we are over paying for the past gluttony of the Mortgage and Real Estate Industries and the sad part is that we are all to blame.

Your mortgage partner for life,

Rey "Steak Dinner" Gallegos
Senior Loan Officer

Five Star Mortgage

Email: rey@steak-dinner.com
4NevadaMortgageLoans.com

Your complete community mortgage broker
Proud member National Association of Mortgage Brokers

Posted by Rey Gallegos Mortgage Loan Officer Las Vegas, NV on 12/06/2007 05:51 PM

Comments (45)

freddie mac guidlines, fannie mae guidelines

Post is included in group: Mortgages
Post is included in group: All About Mortgages/Mortgage Networking
Post is included in group: Mortgage Financing, Market Data & Forecast
Post is included in group: True Mortgage Professionals
Post is included in group: Mortgage Blogs

45 Comments on I blame you for the mess we are in...

DEC

2007

Wow- thank you for the info. Isn't the average credit score in the 670's (impacting a large group)? This DOES sound like a BIG double dip. Not good!

Rey - If I'm not mistaken, MI companies have implemented changes in regards to credit scores. If you don't have a 575 score, you can't get it at all. And at 100% LTV, you need a 620.

Sorry mi amigo, but the PMI companies are already going to FICO score adjustments. There are some many issues with the scoring models as you know. The amount of people that can qualify just got smaller.

Laurie: No problem. Thank you for visiting.

Joe and Jason: I will do some investigating but I don't believe that the MI companies have FICO driven rates on Conforming Loans. These pricing changes are only geared towards Conforming Loans (greater than 15 years). In order to qualify for a conforming loan traditionally you have to have a 620+ Fico and 95% LTV or less which would eliminate the scenarios you are talking about. I will double check and edit the post if I find something different.

Rey - Shoot me an email with your findings.

The screenshots below are very tough to read. I went on to MGIC's Website and went into their rate finder. I put in a Conforming 30 Year Loan with two scenarios one at 621 FICO and the other at 721 FICO. Both MI Factors came out the same at .00850 for a Monthly Premium of $251.46.

MI Analysis

Rey, Great post.. even though I hate the subject..lol but you are right on target! The sad part is the FICO system really does not show a true credit worthy of the person. What if they went shopping two months ago and went to 4 lenders... Now they will have to wait because the price bumps they are getting. Or here is another scenario what about the people who have charge off from 4 years ago.. scores are now getting higher the person thinks they are doing the right thing and they pay them off. This gets reported and bamb another hit to the FICO again.. it gets reported as a fresh default paid.

Interesting. Thanks for keeping us up to date on this.

I don't think we are all to blame. The participants that were preying on potential clients/customers know who they are.

The predatory lenders and real estate agents will be onto the next scam asap.

Hopefully it is in another industry.

FHA loan limits in Orange County are generally too low to be meaningful here, but I can't disagree that lenders and mortgage insurers need to be very aware at just how fast markets and prices can change. good post.

Matt: I agree. There will a ton of fallout from this.

Alayna: Thank you.

Dan: ???? Every sector of every Mortgage or Real Estate Industry has one thing or another to do with the mess we are in. People like you and I may have done the right thing with each an every borrower but we still contributed to the problem.

Paul: Polish off your FHA license because Fannie and Freddie will leave us no choice but to move towards the govy loans. With those kind of hits you will be better off sending your 625 borrowers to an FHA loan at 85% regardless of the MI.

Also, I think that FHA has a golden opportunity here. They have gone on record saying that they want to increase loan production back to pre-boom levels. Well come and get it FHA!

Great info, thanks for the post

Allen: Thanks.

How true! Appreciated you posting this info for us.

Congrats on the gold star Rey! You are definitely one of the best kept secrets here and now I have to share you :pout:

Great info as always. Thanks for keeping us agents up to speed on the mortgage market.

Way to go with the Gold Star. This appears to me to be a well researched and supported post.

There are a lot of tides swirling and there is plenty of blame to go around. But, the scammers are already on to their next quick buck. Now we just need to see what it will be...

DEC

2007

Read, enjoyed, was educated, subscribed. Thank you.

Never thought about it this way. Thanks for the information. Have a terrific day!

The consumers always pay. If theft goes up in stores, they raise prices to cover those costs. Guess banks will now be doing the same. Are the above 700 scores affected in any way?

Great info. A little confusing but i think i got the point.

Matt & Josette both make some great points. Good job on putting this in a simple format for others to understand.

Good post Rey. I agree with one of the above comments, we are not all to blame. The interesting thing is that not even very many individual LO's are to blame. I saw a report last night on the news talking about how LO's were given more money for directing people into sub-prime mortgages when they qualified for conforming mortgages because there earned more money by putting them into a sub-prime loan instead of conventional financing. Thats not true at all, if you give someone a sub-prime loan at 11.5% with 1 point of yield you will make much less money than if you put someone into a conventional mortgage at 8% with 3 points of yield and the borrower will save money. The real meat of the matter is that Sub-prime loans were much easier to write because there were many more qualified applicants when sub-prime was available then say now. As a result huge predatory lending shops with a high turn over rate trained 50+ new LO's a month on how to originate Sub-Prime loans and did not teach them anything about conventional financing. It isn't that the individual LO's were making more money by originating Sub-Prime loans VS. Conventional loans, its more a case of most of those LO's not knowing that they could've taken the same borrower to a conventional loan, earned more money, and saved big bucks for their clients.

Regardless of any 'bailout' by the fed..... we are all going to pay.

It just means that the guy who wants to buy a $250,000 house will have to lower his sights and buy the $210,000 house..... or whatever.... i didn't do the math.

Hello Ray,

Great post, I do have to agree with you on the double dipping and am not surprised to see the big two trying to recoupe their losses by adding in risk based adjustments. It makes FHA look even better for now, but I am sure we will see some changes in FHA in the near future. Have a good one.

Diane: Thank you.

Renee: Thank you as always!

Lane: Thanks for visiting. I appreciate the help.

Fran: Thank you.

Kelly: Thanks for reading.

Josette: You got that right. The consumer always pays!

Robert: I understand. It's hard to put into words.

Jeff: Thanks. Good chattin with you this morning!

Christopher: There are a lot of confused people out there. I think a lot of them are over generalizing sub-prime loans. For instance, an Option ARM is not a sub-prime loan but because of the neg-am and the detrimental effect it has had on a lot of people I believe that they think it is a sub-prime loan.

Tom: I agree. I think it is going to be a tough sell to freeze arm rates.

Ronald: I am currently shining up my FHA license! It is an FHA future.

True

Thanks for keeping us up to date on this matter. I think the market moving towards FHA.

Rey, Thanks for the post - along with the good comments your post received it really puts things in perspective

PR: Thanks for reading.

Mohamed: Thank you.

John: Thank you.

DEC

2007

Steak: Wow, you've been a busy guy! Great post & congratulations on the Feature!

Thanks for the update. Things are happening so fast and furious in real estate it's hard to keep up now.

Rey:

Doesn't it sounds like an oxymoron. The higher the risk, the higher the rate. Then, the risk becomes higher and higher, since people with low FICO scores, that are high risk to begin with, have to pay higher rates. They become riskier and riskier?.

Just an observation.

Isaac Bensussen-www.besthomesinlajolla.com

DEC

2007

and I blame you. It is all your falt, you caused this with your gready selling of homes to people.

DEC

2007

Sue: Thank you!

Melina: Yes it is and they keep changing! If things would just stabalize we would be in a much better situation.

Isaac: LOL That is true it does sound like an oxymoron!

James: LOL What???? I don't sell homes.

DEC

2007

What would the adjustment be for someone Approved Eligable with a 550 score... 5.5 to discount?

MAY

2008

Very true.ra

JUN

2008

Fantastic post!

JUL

2008

I think that there are many factors that come into play with all of these changes with Fannie and Freddie and the MI companies........ I think that they are trying to be as profitable as possible to overcome all of the losses from the past two years.......

AUG

2008

In my little corner of paradise the word of the day more often has been......FHA!

Wow, didn't realize this was written in Dec. - Rey, what would you say today about this? I'm sure it's changed. The loan officer in our office says sometimes it's like waking up every day and learning your job all over again. I also agree with a couple of the comments that we are not all to blame. Neither the loan officers I worked wth, or the builders, or the clients/customers really got in over their heads and I never advised anyone to do a loan with interest only. The two people who did them were explained to more than once that this is only a good loan if you are going to pay on the principal and that the rate could go as high as 8-9% or whatever it was.

Leave a response…

Name:

Email:
(optional)

Comment:

What does the graphic say?