Fannie Mae and Freddie Mac, the US Government owned mortgage lenders are adding on extra fees for many loan applicants, while some lenders are going even further in tightening underwriting rules, it has been revealed…
At a time when real estate experts are highlighting the importance of getting more financing into the system mortgage industry underwriting and appraisal changes taking effect this month are putting new hurdles in the way of borrowers and loan officers.
An example is add-on fees from Fannie Mae and Freddie Mac for loans purchased after April 1. In some cases, applicants are being hit with extra fees of three to five per cent because of the type of property they want to buy or refinance, their credit scores or the size of their down payment.
Some major lenders who sell loans to Fannie and Freddie are going further and tightening underwriting rules beyond what either corporation requires. For example, as of April 6,th Wells Fargo, one of the country's largest mortgage originators, imposed a new minimum FICO credit score of 720, up from the previous 620, on all conventional loans purchased through its wholesale system that have less than a 20 per cent down payment. It also began requiring a total debt-to-income ratio maximum of 41 per cent, down from the previous 45 per cent.
Fannie Mae now has a mandatory fee of three-quarters of a percentage point on all condominium loans, no matter how high the applicant's credit score.
For a once popular interest only condo loan with a 20 per cent down payment and a borrower credit score of 690, Fannie imposes one-quarter of a percentage point as an 'adverse market' fee, 1.5 per cent for the below-optimal credit score, three-quarters of a percentage point for the interest only payment feature and the same again because the property is a condo. The total comes to 3.25 per cent extra, which can be paid upfront or rolled into the loan.
On top of these extra fees, borrowers are now starting to get hit with two sets of cost-raising appraisal rule changes. Fannie and Freddie have begun requiring all appraisers to complete an extra 'market condition' report that includes detailed statistical analyses of local sales and pricing trends above and beyond the regular appraisal data.
Many appraisers are charging an extra £30 to £35 for the time required to complete the form. Home buyers and refinancers can expect to pay the higher fees.
From May 1st, Fannie and Freddie are refusing to fund loans with appraisals that do not follow a set of new rules known as the Home Valuation Code of Conduct. The changes mean that mortgage brokers no longer can order appraisals directly, but instead must allow lenders or investors to use third-party appraisal management companies to assign the job to appraisers in their networks.
Jeff Lipes, President of Family Choice Mortgage Corporation said the effect is to 'squeeze some people who are creditworthy by any reasonable standard out of the market'. Even prime borrowers with 800 FICO scores and 50 per cent down payments, Lipes said it would be by no means certain that they would get a mortgage.
John Calabria, President of Bancmortgage said the layers of add on fees are becoming a nightmare. He had a high-income client who wanted to put down 25 per cent (£136,600) to buy an £546,700 condo as a second home but couldn't because the minimum down payment on such a unit is now 30 per cent.