dcsimg
We research, you save.
Got Questions On Rates? (855) 610-2972

What's happening with home prices in the 100 largest metropolitan areas? See HSH's updated "Home Price Recovery Index" to find out!

Conforming loans will be more expensive in 2014

If you're planning on getting a mortgage in 2014, it'll be better to do it sooner than later.

Fannie Mae and Freddie Mac are making changes to the way loans are priced, and the net result will be higher costs for all borrowers. 

Remove one fee, add another

This comes on the heels of a reduction in costs in 46 states, as the Adverse Market Delivery Charge (AMDC), a 0.25 percent fee imposed on all mortgages, is being eliminated everywhere except states where foreclosure costs are exorbitant:

  • New York
  • New Jersey
  • Florida
  • Connecticut

Not surprisingly, these are "judicial" states, where it is taking three years or more for a lender to take control of a property where a borrower has failed.

More and different fees come into play

Increases in "risk based premiums" -- known in the industry as "loan level pricing adjustments" -- will more than offset the disappearance of the AMDC.

Futhermore, more and different fees will apply to borrowers as Fannie and Freddie have expanded the number of "credit buckets" to which fees will apply.

Triple the cost

For example, a loan presently being written to any borrower with a FICO score above 740 and a 20 percent down payment (or equity stake) will see a 0.25 percent AMDC and a 0.25 percent LLPA, for a total of a half-point fee. For a $100,000 loan, that translates in to $500 in cash, or if incorporated into the rate, about a 0.125 percent increase.

After April 1, 2014 the same borrower will no longer see a 0.25 percent AMDC. The same borrower -- now with a FICO above 740 but below 759 -- would face a fee of 1.5 percent. This would either triple the cash total ($1500 in cash) or raise the interest rate by about 0.375 percent.

The breakdown

A higher credit score doesn't bring much relief, either. Borrowers with a 20 percent down payment and a FICO between 760 and 779 will see a one percent fee, and those with a score above 780 will face a 0.75 percent fee.

You'll only be able to escape these add-ons if you can put 40 percent or more down and have a FICO of 700 or above.

Here are some common costs to compare using the old fee structure and the new (old includes the AMDC):

FICO Score

LTV--Percent

Old Fee Total

New Fee Total

>=800      

95%

0.50%

0.75%

>=800      

90%

0.50%

0.75%

>=800      

85%

0.50%

0.75%

>=800      

80%

0.50%

0.50%

 

FICO Score

LTV--Percent

Old Fee Total

New Fee Total

780-799    

95%

0.50%

0.75%

780-799    

90%

0.50%

0.75%

780-799    

85%

0.50%

0.75%

780-799    

80%

0.50%

0.50%

 

FICO Score

LTV--Percent

Old Fee Total

New Fee Total

760-779    

95%

0.50%

1.00%

760-779    

90%

0.50%

1.00%

760-779    

85%

0.50%

1.00%

760-779    

80%

0.50%

0.75%

 

FICO Score

LTV--Percent

Old Fee Total

New Fee Total

740-759    

95%

0.50%

1.50%

740-759    

90%

0.50%

1.50%

740-759    

85%

0.50%

1.50%

740-759    

80%

0.50%

0.75%

 

FICO Score

LTV--Percent

Old Fee Total

New Fee Total

720-739    

95%

0.75%

2.00%

720-739    

90%

0.75%

2.00%

720-739    

85%

0.75%

1.50%

720-739      

80%

0.75%

1.25%

(source: https://www.fanniemae.com/content/pricing/llpa-matrix.pdf)

These fees will apply to loans sold to Fannie Mae or Freddie Mac on or after April 1, 2014. However, it is to be expected that these will start to show up in the market as early as 60 days before (or perhaps more) as it can take an extended period of time to get a loan to close today. This time may be lengthened somewhat by the implementation of Ability-to-Repay rules, new documentation requirements and more.

The upshot …

The upshot is that a mortgage taken early in 2014 is likely to cost a lot less than one taken later in the year.

More help from HSH.com

  • 10 metros where a home costs about $1,000/month

    HSH.com identifies 10 metro areas where you can afford the principal, interest, taxes and insurance payments on a median-priced home for only around $1,000 per month.
  • The salary you must earn to buy a home in 27 metros

    Here’s how much salary you would need to earn in order to afford the median-priced home in your city.
  • HSH.com on the latest move by the Federal Reserve

    The Federal Reserve concluded a meeting today with no change to the federal funds rate and no changes to other monetary policy tools.
  • MID-YEAR UPDATE: HSH.com’s yearly outlook: 10 items for 2016

    At the start of each year, HSH.com details the important factors we think are most likely to influence the mortgage and real estate markets in the coming year.
  • Buying a home? 15 ways to shop for the lowest mortgage rates

No Comments

Leave a Comment
 
 
 
Mortgage Rates from 0.00%