Mortgage interest rates might be low, but some consumers will be looking at increased fees on home loans starting April 1, 2009, The Washington Post columnist Kenneth Harney wrote February 14, 2009.
Fannie Mae and Freddie Mac are increasing mandatory fees and toughening credit score and down-payment rules starting next month.
Under the new guidelines, even potential borrowers who assumed that their FICO credit scores would get them favorable rates will be charged more unless they can come up with down payments of 30 percent or more. For example, a buyer with a 699 FICO score who brings a sizable down payment of about 25 percent to the closing will be hit with a 1.5 percent "delivery" fee at closing.
A buyer with a FICO score between 700 and 720 will pay an extra three-quarters of a point. Even someone with a FICO score from 720 to 739 will pay a quarter-point fee.
Condominium buyers who cannot come up with a 25 percent down payment will be hit with a three-quarter point penalty fee, no matter how high their credit score, simply because they are not purchasing a traditional detached, stand-alone house. That's unfair.
Both Fannie Mae and Freddie Mac report that the extra fees are necessary to counter higher risks and losses associated with certain loan products and borrowers.
In other words, people with decent credit and a down payment are paying for the deadbeats with lousy credit and no money down who borrowed money a few years ago.
Losses for the two companies have increased due to declining home values in many parts of the country. Homes are worth a lot less after foreclosure.
Sure, some borrowers are a greater credit risk than others, but Fannie and Freddie are charging consumers with, for example, 700+ credit scores and 20 percent down payments more fees because they can, plain and simple. It seems that people who have a history of paying their bills on time and using credit wisely are being penalized by many recent government and corporate policies.
It's ridiculous and counterproductive in an environment in which real estate markets around the country need a shot in the arm, not roadblocks to getting home buyers into homes.
The National Association of REALTORS® and other industry groups oppose the new fees and plan to lobby Congress and federal regulators to back off the new guidelines.
There is an alternative available for just about anyone who wants to avoid these new fees: Federal Housing Administration (FHA) mortgages, where down payments go as low as 3.5 percent and credit scores are far less of an issue for most potential borrowers.