Fannie/Freddie Deliver Unwelcome News
HOME LOANS, INDUSTRY NEWS, TIPS FOR BUYERS, TIPS FOR SELLERS
February 22nd, 2009
Politicians agree that solving the housing crisis is key to turning the economy of our country around, yet the top two government sponsored enterprises (GSE’s) announced guidelines that penalize all but the most creditworthy and cash flush borrowers. Whether you are a home buyer, seller, real estate agent or lender, the new rules will impact your bottom line.
Since these GSE’s set the rules for loans they will buy from lenders, these rules will immediately impact consumers, potentially dulling the effectiveness of President Obama’s stimulus bill just passed by Congress. The tightened underwriting guidelines will ultimately exclude thousands from realizing the dream of home ownership.
In a nutshell, here are the changes according to a recent article in SFgate.com:
- Interest rates will be higher for those that tender less than a 30% down payment ( The previous threshold was 20%)
- Borrowers with credit scores below 740, will face higher up front fees. A credit score of 739 will mean an extra 1/4 point, 700-720 score-add 3/4 point, 699 score will pay a 1.5 point “delivery fee”.
- Duplex buyers will face a 1% flat fee add-on, even if they occupy one unit and have a credit score over 800 and put 50% down.
- Cash out refinances could see up to 3 points added to the loan cost if their equity is “modest” and have “low” credit scores.
- Condo buyers will face an automatic 3/4 point add-on penalty if they can’t make a down payment of 25% or more, even if they have a top-notch credit score over 800.
A point is 1% of the loan amount. One point works out to $2,000 on a $200,000 loan. Major lenders are already adjusting their fees upward to reflect the additional costs charged by Fannie/Freddie. Reasons cited for the higher fees are to offset higher risks resulting from low credit scores or skinny equity.
Ironically, just a few months ago, credit scores over 680 were considered good. Credit scores over 740 were excellent. Borrowers with scores over 800 were automatically approved with limited or no documentation. Now, the rules are changing. The main reason these changes are being implemented is due to government take over of Fannie Mae and Freddie Mac last September. For years, GSE’s management answered to no one.
These new rules target certain loan products that “default at four to eight times” the rate of other loans. However, these fees are an example of one branch of government’s belt-tightening undermining the efforts of another trying to kick-start the housing industry.
In my opinion, lax oversight of GSE”s is to blame for the entire collapse of the financial markets. Had CEO’s at Fannie Mae not cooked the books in 2002-2003 (misstating a profit of $10 billion), to assure themselves multi-million dollar bonuses, The Department of Treasury would not have stepped in, freezing their operations until the true status of their operating profits were ascertained, which created a vacuum in the money supply for home mortgages, which was quickly filled by Wall Street’s way of doing business-easy loans with risky terms for anyone who could fog a mirror, then, when Fannie Mae was allowed to get back to the task of buying mortgage-backed securities, they were forced to buy up unsavory toxic mortgages that were financed by Wall Street investment funds, which were then repackaged and sold around the world. Whew! What a Mess!
Now these GSE’s are determined to tighten the noose around the necks of borrowers that wish to aid the recovery by buying a home or home owners that want to refinance out of a loan they never should have been offered had the GSE’s been minding their p’s and q’s all along.
Now, I will step off my soap box!
530-224-6767 or 530-941-7492
BRAD GARBUTT
REALTOR/BROKER ASSOCIATE
REAL ESTATE PROFESSIONALS GMAC
QUARTER CENTURY LOCAL REAL ESTATE EXPERIENCE
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