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Fannie Mae Freddie Mac add fees

Kathleen Pender
Sunday, January 16, 2011

Fannie Mae and Freddie Mac are raising the risk-based fee they charge on mortgages and - for the first time - imposing it on borrowers with high credit scores if their loan-to-value ratio exceeds 75 percent.

Lenders must pay the new fees on loans they deliver to Freddie starting March 1 and to Fannie starting April 1. Because loans typically take 30 to 45 days or longer to close, many lenders will incorporate them into their pricing very soon if they haven't already. Existing loans won't be affected.

Lenders can add this fee to the front-end points they charge customers, fold it into the interest rate, take it out of their own pockets or some combination thereof.

The looming increase "could be a portion of why interest rates have risen" in the last month or so, says Keith Gumbinger, a vice president with HSH Associates.

LendingTree Chief Economist Cameron Findlay says borrowers might be able to avoid the fee increase if they act fast and shop around.

Today, this fee ranges from 0.25 to 3 percent of the loan amount, depending on credit score and loan-to-value ratio. The lower the score and the higher the ratio, the higher the fee. (Freddie's fee tops out at 2.75 percent.)

In most cases, the fee will go up by 0.25 or 0.5 of a percentage point. That's equal to $250 or $500 per $100,000.

Who must pay

What's notable is that for the first time, the fee will be imposed on people higher up the credit spectrum. Fannie and Freddie "are moving to risk-based pricing even in higher credit tiers," Findlay says.

Today, with one small exception, the fee does not apply to borrowers with FICO scores of 720 or above. Under the new structure: 

-- Borrowers with scores in the 720-739 range will be subject to a 0.5 percent fee if their loan-to-value ratio is higher than 75 percent or a 0.25 percent fee if the ratio is between 70.01 and 75 percent. They will pay nothing if their LTV is 70 percent or lower.

-- Borrowers with credit scores of 740 or higher will be subject to a 0.25 percent fee if the ratio is higher than 75 percent. They will pay no fee if it's 75 percent or lower.

To see Fannie Mae's before-and-after pricing matrix, go to sfg.ly/dLDTlZ. Freddie Mac's can be found at sfg.ly/dF2jlC on pages 4 and 5.

Findlay says the fees will hit a wide swath of high-credit-score borrowers for the first time. As of April, 37.4 percent of borrowers had FICO scores of 750 or higher.

The new fees will apply to most loans that Fannie and Freddie buy or guarantee, with a few exceptions.

Fannie calls this fee a loan-level price adjustment and Freddie calls it a post-settlement delivery fee.

The last time these fees went up was in April 2009.

Freddie announced its most recent increase in late November. "These delivery fee changes address the current increased risk and costs associated with certain higher loan-to-value mortgages," it said in a press release.

Fannie announced its increase two days before Christmas. "The changes are intended to more accurately reflect changing risks in the housing market," Fannie spokeswoman Amy Bonitatibus says.

But Gumbinger says, "I'm not so sure the risk profile has changed." He notes that credit scores on new Fannie and Freddie loans "are way up there."

According to a study by Inside Mortgage Finance, the average FICO score on new Fannie and Freddie mortgages hit 765.6 and 764.8, respectively, in the fourth quarter of 2010. That is the highest since the publication began keeping track in 2005.

'They need the fees'

"If most are coming in the 760s, Fannie and Freddie aren't collecting fees (on them). They need fees for profitability. It's not that these people are riskier. They need more fees from people coming in the door," Gumbinger says.

Freddie Mac spokesman Brad German denied that assertion. The risk-based fees "are based on the loss experience of loans in the portfolio," he says.

Freddie noted that "generally, these increases will have a nominal effect on consumer affordability." For example, it said that if a lender applied a 0.25 percent delivery fee to an interest rate, it would increase the rate by about 0.05 percent on a fully-amortized, 30-year mortgage. For a $200,000 mortgage, this would add less than $10 to the monthly payment.

Gumbinger agrees that a 0.25 percent fee does not have a huge impact, but when you add it to all the other fees that lenders and third parties have been adding to mortgages, it adds up.

In addition to the risk-based fee, in March 2008, Fannie began imposing what it calls an adverse market delivery charge on all mortgages, to make up for the fact that home prices are declining. This fee is 0.25 percent of the loan amount regardless of the credit score or loan-to-value ratio.

Freddie also charges what it calls a market condition fee equal to 0.25 percent of the loan amount.

These fees are not changing, as of now.

Net Worth runs Tuesdays, Thursdays and Sundays. E-mail Kathleen Pender at kpender@sfchronicle.com. Read her blog at sfgate.com/pender. This article appeared on page D - 1 of the San Francisco Chronicle

Kathleen Pender
Sunday, January 16, 2011

Fannie Mae and Freddie Mac are raising the risk-based fee they charge on mortgages and - for the first time - imposing it on borrowers with high credit scores if their loan-to-value ratio exceeds 75 percent.

Lenders must pay the new fees on loans they deliver to Freddie starting March 1 and to Fannie starting April 1. Because loans typically take 30 to 45 days or longer to close, many lenders will incorporate them into their pricing very soon if they haven't already. Existing loans won't be affected.

Lenders can add this fee to the front-end points they charge customers, fold it into the interest rate, take it out of their own pockets or some combination thereof.

The looming increase "could be a portion of why interest rates have risen" in the last month or so, says Keith Gumbinger, a vice president with HSH Associates.

LendingTree Chief Economist Cameron Findlay says borrowers might be able to avoid the fee increase if they act fast and shop around.

Today, this fee ranges from 0.25 to 3 percent of the loan amount, depending on credit score and loan-to-value ratio. The lower the score and the higher the ratio, the higher the fee. (Freddie's fee tops out at 2.75 percent.)

In most cases, the fee will go up by 0.25 or 0.5 of a percentage point. That's equal to $250 or $500 per $100,000.

Who must pay

What's notable is that for the first time, the fee will be imposed on people higher up the credit spectrum. Fannie and Freddie "are moving to risk-based pricing even in higher credit tiers," Findlay says.

Today, with one small exception, the fee does not apply to borrowers with FICO scores of 720 or above. Under the new structure: 

-- Borrowers with scores in the 720-739 range will be subject to a 0.5 percent fee if their loan-to-value ratio is higher than 75 percent or a 0.25 percent fee if the ratio is between 70.01 and 75 percent. They will pay nothing if their LTV is 70 percent or lower.

-- Borrowers with credit scores of 740 or higher will be subject to a 0.25 percent fee if the ratio is higher than 75 percent. They will pay no fee if it's 75 percent or lower.

To see Fannie Mae's before-and-after pricing matrix, go to sfg.ly/dLDTlZ. Freddie Mac's can be found at sfg.ly/dF2jlC on pages 4 and 5.

Findlay says the fees will hit a wide swath of high-credit-score borrowers for the first time. As of April, 37.4 percent of borrowers had FICO scores of 750 or higher.

The new fees will apply to most loans that Fannie and Freddie buy or guarantee, with a few exceptions.

Fannie calls this fee a loan-level price adjustment and Freddie calls it a post-settlement delivery fee.

The last time these fees went up was in April 2009.

Freddie announced its most recent increase in late November. "These delivery fee changes address the current increased risk and costs associated with certain higher loan-to-value mortgages," it said in a press release.

Fannie announced its increase two days before Christmas. "The changes are intended to more accurately reflect changing risks in the housing market," Fannie spokeswoman Amy Bonitatibus says.

But Gumbinger says, "I'm not so sure the risk profile has changed." He notes that credit scores on new Fannie and Freddie loans "are way up there."

According to a study by Inside Mortgage Finance, the average FICO score on new Fannie and Freddie mortgages hit 765.6 and 764.8, respectively, in the fourth quarter of 2010. That is the highest since the publication began keeping track in 2005.

'They need the fees'

"If most are coming in the 760s, Fannie and Freddie aren't collecting fees (on them). They need fees for profitability. It's not that these people are riskier. They need more fees from people coming in the door," Gumbinger says.

Freddie Mac spokesman Brad German denied that assertion. The risk-based fees "are based on the loss experience of loans in the portfolio," he says.

Freddie noted that "generally, these increases will have a nominal effect on consumer affordability." For example, it said that if a lender applied a 0.25 percent delivery fee to an interest rate, it would increase the rate by about 0.05 percent on a fully-amortized, 30-year mortgage. For a $200,000 mortgage, this would add less than $10 to the monthly payment.

Gumbinger agrees that a 0.25 percent fee does not have a huge impact, but when you add it to all the other fees that lenders and third parties have been adding to mortgages, it adds up.

In addition to the risk-based fee, in March 2008, Fannie began imposing what it calls an adverse market delivery charge on all mortgages, to make up for the fact that home prices are declining. This fee is 0.25 percent of the loan amount regardless of the credit score or loan-to-value ratio.

Freddie also charges what it calls a market condition fee equal to 0.25 percent of the loan amount.

These fees are not changing, as of now.

Net Worth runs Tuesdays, Thursdays and Sundays. E-mail Kathleen Pender at kpender@sfchronicle.com. Read her blog at sfgate.com/pender. This article appeared on page D - 1 of the San Francisco Chronicle

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Licensed by the California Bureau of Real Estate
License number 00685309
NMLS number 338105
Equal Housing Lender
Licensed by the California Bureau of Real Estate
License number 00685309
NMLS number 338105
Equal Housing Lender