Attorney and credit repair expert Edward Jamison has warned us about important changes to loan rates for those with medium credit and moderate equity in their properties.
Jamison reports that Fannie Mae and Freddie Mac have announced loan price increases for borrowers with credit scores below 680 on loans with LTVs less than 70%. (In other words, less than 30% equity or down payment.)
In case you aren’t familiar with Fannie Mae and Freddie Mac, they are government-sponsored enterprises (GSE’s) that make loans and loan guarantees. They help keep the money flowing in the mortgage market.
Not every lender relies on their “conforming” loan guidelines, but many do because they want to package and sell their loans on the secondary market. (Yes, that ties into all the “mortgage turmoil” news lately.)
So back to the news: In an investor conference call Mike Quinn, SVP Single-Family Risk Officer for Fannie Mae said, “we announced a meaningful, across-the-board increase on loans having credit scores below 680 and LTVs above 70%. These changes in underwriting and pricing will help control losses and maintain appropriate levels of profitability through this cycle.”
And in a letter posted on their website, Freddie Mac said they will be charging from .75% up to 2.0% depending on the borrower’s credit score for loans submitted with less than a 70% LTV and credit scores below 680.
The following table illustrates the rates and costs for a borrower with a loan amount of $300,000.
Credit Score: Below 620
Delivery Fee Rate: 2.00%
Cost: $6000
Credit Score: 620-639
Delivery Fee Rate: 1.75%
Cost: $5,250
Credit Score: 640-659
Delivery Fee Rate: 1.25%
Cost: $3,750
Credit Score: 660-679
Delivery Fee Rate: 0.75%
Cost: $2,250
This is big news! If your credit score falls below one of those thresholds and you don’t have enough equity in your home (as many don’t these days) you may find it more expensive to refinance — or buy a home — especially if you aren’t taking advantage of the latest technology to search home loan rates and seek out alternatives.
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