CRAZY NEW FEE SYSTEM Adds Cost, Confusion To New Mortgage Loans!
RISK-BASED FEE STRUCTURE COULD INCREASE COST OF A LOAN SIGNIFICANTLY! BAD TIMING?
Here's a 100-words-or-less summary of the Mortgage Market in Chicago today: Credit is tight. Underwriting Rules often preclude those with marginal credit or low down payments (although FHA is a good option for many). Appraisals are often too low. And Loan Fees are high - and getting higher!
In last Friday's Chicago Tribune, columnist Mary Ellen Podmolik summarizes a new fee structure for large U.S. Loan Guarantors and Investors Fannie Mae and Freddie Mac that you might need a scorecard to figure out! The bevy of new fees officially take effect on April 1st, but many lenders are beginning to apply them early - to assure compliance.
Fees are increasing for buyers of condominiums putting less than 25% down, for those purchasing manufactured homes, small multi-unit apartment buildings, those seeking cash-out when the refinance, and borrowers desiring interest-only or subordinate financing.
A previously-applied 1/4% credit for the best borrowers is all but gone!
In recent weeks, mortgage interest rates have crept back up to the mid-five-percent range. Many loan applications are being rejected due to under-appraised collateral properties. The fees are negating potential monthly savings that lower rates can bring, especially for those seeking to re-fi higher-rate adjustable mortgages into those offering fixed rates. In these cases, refinancing now makes little sense!
Podmolik forwards these scenarios in her story -
A borrower taking out a traditional 30-year-fixed home mortgage who has a FICO Credit Score of 680, but is putting down even a dime less than 20%, will pay a risk fee of 1.0%, doubling the previous fee of 0.5%. On a $400,000 home loan - that's an additional $2,000 in fees!
If that same borrower's FICO came in one point lower - 679 - the risk-based fee: 2.25%!
Take that same borrower, increase their credit score back to 680, but raise the down payment one dime - to exactly 20% - and the risk fee would increase from 1.0% to 1.5%. The seemingly-distorted logic: those adding a slight bit to their down payment simply to avoid costly Private Mortgage Insurance (PMI) pose additional risk.
Many lenders, including Ken Perlmutter, of Perl Mortgage, as well as our Team Mortgage Partner Vince Kueffner of WinTrust Mortgage, both here in Chicago, are hesitant to provide precise quotes on loan fees until the loan package receives final approval from the underwriter. Until then, applicable fees are nothing but a guess!
Is risk-aversion on the right track, or getting a bit cuckoo? You decide!
DEAN MOSS & DEAN'S TEAM CHICAGO
