FANNIE MAE, FREDDIE MAC ADD-ON FEES Mute The Benefit of Low Mortgage Interest Rates for Many Home Borrowers!
RISK-BASED FEES FOR MOST COULD ADD THOUSANDS OF DOLLARS TO COST OF TYPICAL REAL ESTATE PURCHASE!
Low Interest Rates around 5.00%! Tons of Available Homes-For-Sale Inventory to Choose From!
Is this a bonanza for 2009 Home and Condo Buyers?
Not necessarily . . . if you count the new fees, higher loan underwriting standards, and revised appraisal rules just enacted in the mortgage industry beginning last month. These were detailed last week in a story by Kenneth R. Harney of The Washington Post, and carried in the Real Estate pages of The Chicago Tribune.
Giant U.S. Mortgage Investors and Guarantors Fannie Mae and Freddie Mac, now operating directly as units of the U.S. Treasury, are hitting potential homeowners with fees as high as 5% of the new loan amount, depending on the type of real estate being considered, as well as their own credit scores and the amount of their down payment.
Major mortgage lenders are also imposing higher standards on their own. As of early April, mortgage giant Wells Fargo began requiring a minimum FICO Credit Score of 720, versus the previous 620, for all loans issued by its affiliated loan brokers, for all borrowers who have less than a 20% down payment. The lender also strengthened its maximum debt-to-income ratio, down to a maximum of 41% of monthly net income, from the previous 45%.
Buying a condo? Any condo?
Fannie Mae now imposes a 3/4% up-front fee on any condominium loan - no matter the down payment or the borrowers credit score. High-risk loans, such as that once-very-popular interest-only loan, add another 3/4% add-on up-front.
Credit score below the 720 threshold? Fannie Mae is adding an additional 1.5% for this below-optimal credit score, as they define it. They also tack on an additional 1/4% up-front for an "adverse market" fee.
Add up all the fees to reach a total of 3.25% of the total loan amount, either paid in cash at closing, or financed with the loan amount. Depending on the amount financed, this total fee could add as much as $13,500 to the amount financed, and result in more than four times that in interest if the loan were carried to its full 30-year term.
For the short term, such a financed fee would add over $80 in monthly payment to a maximum, $416,999 conforming loan!
In addition, tighter appraisal rules and standards may make these costs higher.
Effective June 1st, all appraisers operating under Fannie Mae and Freddie Mac Appraisal Guidelines must perform an extra "market conditions" report that provides a more detailed analysis of local market pricing trends. Also, Fannie and Freddie's new "Home Valuation Code of Conduct" will now prevent lenders from contracting directly with appraisers. Instead, they must now order appraisals, without the possibility of interference and impropriety, through a third-party "Appraisal Management Company".
The end result? For many buyers, and their Real Estate Practitioners, even strong buyers, with good financial credentials, may lack what they feel are obvious qualifications to buy a home or condo.
DEAN MOSS & DEAN'S TEAM CHICAGO
