It may not be what home buyers, sellers and refinancers want to hear, but they need to know: Fannie Mae and Freddie Mac are ratcheting up their mandatory fees and toughening credit score and down-payment rules as of April 1, 2009.
Most major lenders already are pricing in these higher fees, effectively raising cost to borrowers immediately and reducing the impact of housing stimulus efforts from Congress and the Obama administration.
Under Fannie's and Freddie's new guidelines, even applicants who assumed that their FICO credit scores would get them favorable rates will be charged more unless they can come up with down payments of 30 percent or more!
Both Fannie Mae and Freddie Mac say they are tacking on these extra fees to counter higher risks and losses associated with certain loan products, buyer equity stakes and credit scores. Declining home values in many parts of the country are intensifying losses for both companies when loans go to foreclosure.
As recently as two years ago, FICO scores in the upper 600s were enough to qualify any applicant for prime financing. Now scores of 730 to 740 are the bare minimum if you're going to escape add-on fees & still not good enough in you choose to buy a condo or a duplex.
Where is all this headed? Without congressional intervention or new marching orders from the companies' regulator, the add-on fees are here to stay.
But there's an alternative available for just about anyone who wants to avoid the fees: Federal Housing Administration (FHA) mortgages, where down payments go as low as 3.5 percent and credit scores are not an issue for most applicants. (But PMI for life!)
Kenneth R Harney, Saturday February 14, 2009