I received a couple of emails regarding Freddie Hikes Mortgage Fees .25 Points; Fed Report shows Mortgage Borrowers Deleverage; Mortgage Spreads Highest in Year

Dan Hughes at Summit Mortgage writes …

Reuters reporter Al Yoon conflated fee changes regarding Loan-to-Value ratios of 75% with a need for borrowers to get “Mortgage Insurance”.

The need for Mortgage Insurance still sits at 80.0001%, the same as before.

From Al Yoon: “However, even the most creditworthy borrowers would be affected unless they put 25 percent down, up from the 20 percent that has long been the minimum equity needed to escape the need for mortgage insurance.

“This makes 75 percent the new 80 percent,” said Scott Buchta, head of investment strategy at Braver Stern Securities in Chicago, of the maximum loan taken without added fees.”

In a word, bull****. With a 740 score, incurring an extra $500 delivery fee on a $200k loan (whether paid at closing or built into the rate) is not the same as having to have mortgage insurance. The main take-away from the Freddie change is that for all borrowers who don’t have very high scores, conventional loans will continue to bear markedly higher rates than FHA loans.

Thanks for your hard work, Mish.

In response to that email and after a review of the actual document from Freddie Mac, I revised the title of my earlier post, stripping out the reference to mortgage insurance. I will add an addendum to that post, pointing to this one.

Freddie Mac Bulletin

Inquiring minds are reviewing the November 22, Freddie Mac Explanation of Service Bulletin 2010-30.

Effective date: March 1, 2011

In this Single-Family Seller/Servicer Guide (“Guide”) Bulletin, effective for all Mortgages sold to Freddie Mac with Settlement Dates on or after March 1, 2011, we are revising our postsettlement delivery fees (“delivery fees”).

For certain Mortgages, we are:

  • Increasing the Indicator Score/LTV delivery fee rates by 25 or 50 basis points for Mortgages with certain Indicator Score/LTV ratio combinations
  • Increasing the Secondary Financing delivery fee rate by 25, 50, or 75 basis points for Mortgages with certain LTV/total LTV (TLTV) and Indicator Score combinations
  • Adding a new Secondary Financing delivery fee for Mortgages with LTV ratios less than or equal to 65%, and TLTV ratios greater than 80% and less than or equal to 95%
  • Revising TLTV parameters for Mortgages with Secondary Financing and LTV ratios greater than 65% and less than or equal to 75%

Freddie Mac Fees

click on table for sharper image

The main difference from before is the extra .25 point borrowers have to pay if they do not put down 25%. For some credit scores, fees went up by .50 points.

There is no reference to Mortgage Insurance.

Why Your Credit Score Matters

Looking to buy a house or refinance? Take a look down that table and see what happens.

  • In the 75%-80% LTV column, you are hit by an extra .50% if your credit score is 699 instead of 700.
  • The difference between 679 and 680 is a a full 1.0%.
  • The difference between a credit score of 679 and 741 is a whopping 2.5%.

Both people I talked to today said these values are rigid. If you are looking to refinance or buy, and you are close to a major cutoff, small differences in credit scores can be a big deal.

Mike “Mish” Shedlock
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