Mortgage News in the Carolinas
Posts tagged Fannie Mae
Mandatory Loan Fees Keep Borrowers From Getting Their Absolute Lowest Rate
0676 days
by Geoff Brown
in Mortgage Rates
Conforming mortgage rates may be at all time lows this week, but that doesn’t mean you’ll be eligible for them. You may have already called your loan officer and found this out the hard way.
It’s because of a federally-mandated mortgage-pricing scheme known as “loan-level pricing adjustments”.
In effect since April 2009, loan-level pricing adjustments are changes to a loan’s base rate and/or fee structure based on that loan’s inherent risk to Wall Street. It’s similar to auto insurance pricing adjustment in that a sports car, all things equal, will cost more to insure than a comparably-priced minivan.
More risk, more cost.
In mortgage lending, loan risk can be loosely grouped into 5 categories. Mortgage applications in Charlotte featuring any of the five traits are subject to price adjustments:
- Credit Score (i.e. the borrower’s FICO is below 740)
- Property Type (i.e. the subject property is a multi-unit home)
- Occupancy (i.e. the subject property is an investment home)
- Structure (i.e. there is a subordinate/junior lien on title)
- Equity (i.e. mortgage insurance is required by the lender)
Furthermore, loan-level pricing adjustments are cumulative.
A 3-unit investment home will face larger adjustments than an owner-occupied 3-unit home, for example. It’s these adjustments that explain why you may not be eligible for the rates you see advertised online and in the newspapers — your particular loan may be subject to this risk-based pricing that raises your mortgage rate and closing costs.
The government’s loan-level pricing adjustment schedule is public information. See what your lender and how your loan quote is made at the Fannie Mae website. Or, if you find the charts confusing, just call or email your loan officer for help with interpretation.
Fannie Mae’s Loan Quality Initiative : Repulling Your Credit Just Before Closing
0712 days
A new loan quality initiative from Fannie Mae is making it harder for Charlotte home buyers and refinancing homeowners everywhere to close on a mortgage.
Beginning June 1, 2010, with all new applications, Fannie Mae wants lenders to verify that borrowers have not taken on new debt during the underwriting phase of the mortgage.
If new debts are found, the mortgage is subject to a re-underwrite and a possible turndown.
For Fannie Mae, the goal is to reduce the number of loans that go bad because of new, non-disclosed debt. Lenders have the freedom to verify in whatever manner they wish, but in most cases, the verification process will amount to a credit re-pull made just prior to closing.
The underwriters will be looking for 3 things in particular — even after your loan is approved.
First, your updated credit report will show your current credit card bills and minimum monthly payments. Those numbers will replace your original numbers made at the time of application. If the debts exceed a certain threshold, your loan will be denied.
Second, underwriters will be looking at your updated credit score. If your FICO has dropped below minimum lending standards, your loan will be denied. Or, you may be subject to a new loan-level pricing adjustment.
Loan level pricing adjustments are mandatory loan fee based on your credit score.
And, lastly, underwriters will be looking at your credit report’s Credit Inquiry section. The goal is to see if you’ve been applying for credit elsewhere. Underwriters can use this information at their discretion.
Fannie Mae’s Loan Quality Initiative is just one more way that the government-backed group is trying to improve its loan pools. Unfortunately, it’ll mean more turndowns for mortgage applicants.
Therefore, take extra care of your credit between the time of application and the time of closing. Don’t buy new cars, don’t buy new appliances, and — most definitely — don’t open new credit cards. Be extra safe with your credit because a mortgage application that’s supposedly cleared-to-close can be revoked at the eleventh hour.
When in doubt, talk to your loan officer about what may or may not trigger the Loan Quality Initiative. Your loan approval is at stake.
1 In 8 Banks Tightened Prime Mortgage Standards Last Quarter
0745 days
The Federal Reserve says that financial markets “remain supportive of economic growth“. Residential mortgage guidelines, however, continue to tighten.
If you’ve applied for a home loan recently, you probably felt it; extra scrutiny on income, assets and credit scores, among other things. The hard proof of the changes, however, can be found in the Federal Reserve’s quarterly survey of its member banks.
Every 3 months, the Federal Reserve asks senior bank loan officers around the country whether their respective banks’ “prime” residential mortgage guidelines tightened since the last survey.
For the period January-March 2010, 1 in 8 banks surveyed toughened their qualification standards.
Only 4% loosened them.
When we account for the Fed’s survey in conjunction with new underwriting standards from Fannie Mae and FHA, it’s clear that getting approved for a mortgage in 2010 is more difficult than at any time in recent memory.
Today’s homeowners and home buyers in Charlotte have taller hurdles to leap:
- Minimum FICO scores are higher
- Downpayment/equity requirements are larger
- Debt-to-Income thresholds are smaller
In other words, mortgage rates may stay low throughout 2010, but that won’t matter to homeowners failing to meet the new, minimum eligibility standards as set forth by the lenders.
If you’re among the many people wondering if now is the right time to buy or refinance a home, remember that — along with a probable increase in mortgage rates — mortgage approvals are getting more scarce.
The best home price or mortgage rate in the world won’t matter if you’re ineligible for financing.
