Richard Sweum: So you thought 700 was a good FICO Score? (delay?)

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Mortgage and Lending with 1st Security Bank NMLS #115765

Richard Sweum:  So you thought 700 was a good FICO Score?

(Possible delay in implementation leaked by the new FHFA Director... this would be helpful!)  No, 700 is not a good FICO score...at least not any more.  Fannie and Freddie have something called LLPA's, (loan level price adjusters) for a number of elements of a borrowers credit profile and the type of loan characteristics present.  I've always been frustrated by lenders that advertise "rates" because every borower and every type of loan transaction is unique and a rate and the cost of the rate is just as unique.   Each rate available to consumers on a rate sheet has either a cost or a rebate attached to it.  A loan officer totals up all of the various LLPA's and either adds or subtracts it from the rate desired and determines a cost associated with it. 

For example, a borrower with 20% down payment purchasing a single family residence for $300,000 has a FICO sore of 700.  The loan level price adjustment for his FICO and Loan to Value (LTV) is 1.75.  If he wants a 4.5% interest rate on a 30 year fixed, and there is no rebate or cost to that rate on the rate sheet, he would have to pay a 1.75% discount point or $5250 plus all of the other fees to obtain that rate.  This year, the LLPA for that particular characteristic was only 1% discount point, or $3000.  An increase in 2014 of $2250 or 75 basis points. 

Below is a chart detailing the changes in LLPA's for 2014.  Conventional loans just got .75% more expensive, or .25% higher rate for the same cost structure. 

The effects:  higher rates, higher costs of rates, and fewer borrowers at each price point of real estate in all markets.  Supply and Demand laws would suggest that home appreciation will take it on the chin.  Combine this with tigher loan qualification standards, higher rates in general due to the Federal Reserve tapering their purchase of mortgage backed securities, and you have some serious headwinds created to a languising housing market.

Another thing to consider; blacks and hispanics have lower credit scores on average than do white and asian american borrowers... CAN YOU SAY DISPARATE TREATMENT AND IMPACT? 

 

Richard Sweum:  So you thought 700 was a good FICO Score?

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