Fannie Mae Pricing Adjustments for 2008
This recent news will have an effect on how many borrowers consider FHA loans. New pricing adjustments based on credit scores will go into effect for Fannie Mae and Freddie Mac on March 1st, 2008, though some lenders may begin enacting the new standards as early as January 2008. These adjustments will make FHA loans a better alternative for consumers with a sub-680 credit score.
Details on the new Fannie Mae / Freddie Mac Pricing Adjustments
Credit scores between 679 and lower have been divided up into four categories, each with a corresponding percentage of the loan to be paid as an additional fee. Here’s the Credit Score Categories and their corresponding fee percentages:
• 660 – 679: 0.750%
• 640 – 659: 1.250%
• 620 – 639: 1.750%
• 620 or lower: 2.000%
This means that if your credit score is, for example, 645 and you were purchasing a mortgage on a $300,000 home; you would be forced to pay a credit-based fee of $3,750. If your credit score is 630 your fee would bump up to $5,250 and $6,000 for a credit score below 620.
Borrowers will have three options for paying their credit-based fees. They can accept a higher interest rate that will account for the fees in a higher cost, build the fee into the new loan amount (only on a refinance) or bring extra cash to the table. Also effective in early March on all loans is a quarter-percent delivery fee.
FHA Modernization Legislation
HR 1852, the Expanding American Homeownership Act, is legislations to reform and modernize the FHA program. HR 1852 has been passed in the House and is awaiting voting in the Senate. A similar bill has been proposed in the Senate and the final result may be a combination of the two.
Under HR 1852, changes to FHA would be made in the following areas:
• Loan Limits
o Mortgage limits would be increase for borrowers
o This will allow FHA to become a realistic option for those in high cost areas
• Down Payment
o Eliminate 3% cash down requirement
o This change has led to the most debate. Solutions range from zero down to 1.5% down that could be packaged into fees.
• Loan Term
o Allow for a 40 year loan term
• Risk-Based Premiums
o Determine the borrower’s premium based on his or her credit profile.
o This will allow for borrowers with better credit to pay a lower percentage. Borrowers with poor credit will have to pay a slightly higher amount.
o This practice has been used in the private mortgage industry since the mid-1990s.
• Home Classification
o Allow for condominiums to be considered a single family rather than multifamily housing
• Reverse Mortgages
o Increased accessibility by reducing fees and additional costs
FHA Secure is a new refinancing for borrowers struggling with making payments on their adjustable rate mortgage (ARM). FHA Secure is for borrowers who have a good history of mortgage payments, but have had trouble keeping up after an interest level reset.
FHA Secure has three main eligibility requirements:
. The borrower must currently have a Non-FHA ARM that has reset
2. The borrower must have sufficient income to make payments
3. The borrower must have a history of on time payments before the interest rate reset
FHA Secure offers the benefits of lower monthly payments and will make it possible for many Americans to avoid foreclosure
HOPE NOW is a private-sector alliance that was brought together by the Department of the Treasury and HUD. The alliance is made up of counselors, lenders, investors, and others in the mortgage industry. Members of HOPE NOW are offering three solutions to borrowers facing an inability to afford rising interest rates:
1. Refinancing an ARM into a new, private mortgage
2. Refinancing into an FHA Secure loan
3. A freeze on their current interest rates for up to five years
Other actions being taken and services being provided by HOPE NOW include:
• Direct mail campaign to at-risk borrowers
• Counseling fees reimbursed in some situations
• Speeding the work flow and communications involved in counseling services
• Standardized communications for working with at-risk borrowers
• Technology improvements to strengthen the counseling process
Borrowers can learn more about the program at http://www.hopenow.com.
Contact a FHA