April 21, 2009

Fannie Mae New Loan Fees April 2009
By Andre Plessis

Mortgage rates and house prices are down, but new home-appraisal and mortgage-underwriting changes taking effect this month are throwing new hurdles in front of would-be home buyers.

Take Fannie Mae’s and Freddie Mac’s add-on fees for loans purchased after April 1, 2009.

In some cases, applicants are being hit with extra fees of 3 percent to 5 percent because of the type of property they want to buy or refinance, their credit scores, or the size of their down payment.

Effective April 1, 2009, Fannie Mae is raising its loan fees. More commonly, Fannie Mae's risk-based fees are known as loan-level pricing adjustments.

Fannie Mae now has an across-the-board three-quarters of a point mandatory fee on all condominium loans, no matter how high the applicant’s credit score.

But loan-level pricing adjustments aren't just limited to credit score and equity percentage. The new Fannie Mae guidelines put three other loan characteristics in play, too.

And, don't forget that the existing LLPAs still apply. 2-units pay 1 point, cash out refinances pay some more.

The ONLY good news here is that loan fees don't have to be paid in the form of cash due at closing, they can be financed into the mortgage rate or rolled into the loan.

So, even though mortgage rates may fall in the future, applicants subject to risk-based pricing may find that risk-adjusted interest rates aren't be lower at all.

The same methodology applies to loan-level pricing adjustments and, in this sense, LLPAs are fair, Fannie Mae's highest risk borrowers are paying the highest costs.

Since April 2008, Fannie Mae has stepped between Wall Street and Main Street about nine times to alter mortgage pricing. This is not good news because interest rates are supposed to be determined by the price of mortgage bonds alone.

Instead, rates are being set by mortgage bond pricing plus the fees that Fannie Mae adds on top.

It is unlikely the last change we see from Fannie Mae. It will be more difficult to get financing in the future.

As of April 6, 2009 Wells Fargo imposed a new minimum FICO score of 720, up from the previous 620 on all conventional loans purchased through its wholesale division that have less than 20% down payment. All loans that require mortgage insurance will need a minimum 720 FICO score. It also began requiring a total debt-to-income ration maximum of 41%, down from the previous 45%.

On top of that, Fannie Mae and Freddie Mac, borrowers are now starting to get hit with two sets of cost-raising appraisal rule changes. Fannie and Freddie have begun requiring all appraisers to complete an extra “market condition” report that includes detailed statistical analyses of local sales and pricing trends, above and beyond the regular appraisal data. Many appraisers are charging an extra $45 to $50 for the time required to complete the form. Homebuyers and refinancers can expect to pay the higher fees.

Beginning May 1, Fannie and Freddie are refusing to fund loans with appraisals that do not follow a set of new rules known as the “Home Valuation Code of Conduct.” Among the procedural changes: Mortgage brokers no longer can order appraisals directly, but instead must allow lenders or investors to use third-party “appraisal management companies” to assign the job to appraisers in their networks.

Starting April 15, all good faith estimates (GFEs) provided to applicants must indicate a flat $455 charge for appraisals arranged through the appraisal management company.