Monday, February 16, 2009

Fannie & Freddie Upping Fees, Credit Score Requirements, Downpayments

Giant Mortgage Lenders Fannie Mae and Freddie Mac, which were taken over by the Government back in September, are responding to their ongoing foreclosure losses by charging new customers more for mortgages.

Fannie Mae and Freddie Mac own or guarantee roughly 57% of all residential mortgages in the United States. They've received billions in bailout money from the Fed even as they continue bleeding money.

The new guidelines take effect April 1, according to WaPo, but:

"Most major lenders already are pricing in these higher fees, effectively raising costs to borrowers immediately and reducing the impact of housing stimulus efforts from Congress and the Obama administration.

Under Fannie's and Freddie's new guidelines, even applicants who assumed that their FICO credit scores would get them favorable rates will be charged more unless they can come up with down payments of 30 percent or more.

For example, a buyer with a 699 FICO score who brings a sizable down payment of about 25 percent to the table will be hit with a 1.5 percent "delivery" fee at closing under the new guidelines.

A buyer with a FICO score between 700 and 720 will pay an extra three-quarters of a point. Even someone with a 739 FICO -- once considered a platinum guarantee of the best rates available -- will get dinged with a quarter-point add-on.

Condominium buyers who cannot come up with a 25 percent down payment will be hit with a three-quarter point add-on penalty, no matter how high their credit score -- simply because they are not purchasing a traditional detached, stand-alone house.

As recently as two years ago, FICO scores in the upper 600s were enough to qualify any applicant for prime financing. Now scores of 720 to 740 are the bare minimum if you're going to escape add-on fees -- and still not good enough if you choose to buy a condo or a duplex.

To avoid these fees and pay as little as 3.5% down, consider an FHA loan. Unfortunately for the Charlottesville MSA, the limit for FHA loans is $437K (and this number takes into account that this is a "high cost" area).

Read all about the Fan/Fred fees and conditions, in this column by WaPo's Kenneth R. Harney.

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