The two biggest sources of mortgages for American homebuyers plan to raise their base fees to counter what they see as continuing "adverse conditions" in the real estate marketplace.
At the same time, however, Fannie Mae and Freddie Mac - who currently fund more than three-quarters of all new home loans - also plan to selectively reduce fees for certain applicants whose likelihood of default and foreclosure appear to be lower than the companies' previous estimates.
The changes are being driven by what's known as risk-based pricing. Factors such as your credit scores, the size of your down payment and the type of loan you seek can push your expenses on a new mortgage up or down significantly - costing or saving you tens of thousands of dollars over the term of the loan.
Here's what's happening: As of Oct. 1 for new mortgages delivered to Fannie Mae, and Nov. 7 for loans delivered to Freddie Mac, baseline "adverse-market" fees will be doubled from one-quarter of a percentage point to one-half a percentage point - from $250 per $100,000 borrowed to $500 per $100,000 borrowed. That applies to all home purchasers and refinancers, irrespective of their individual risk characteristics. The higher fees either will be paid upfront by borrowers or folded into the interest rate on their notes, adding about an eighth of a point to the rate.
Although the formal start dates for the higher fees are not until the fall, major lenders already are incorporating them into their current quotes and rate sheets. Neither company issued announcements of the jump in fees to the general public, but sent e-mail bulletins to their lender partners instead.
On the flip side of the higher baseline costs is a series of risk-based pricing changes keyed to individual borrowers' scores and down payments. Both companies plan to reduce fees for borrowers with high FICO credit scores - 720 and up - who make down payments of less than 15 percent. These borrowers will be quoted credits of one-quarter of a percentage point - amounting to cuts in their fees - at the application stage.
At the same time, borrowers with Fair Isaac Corp.'s FICO scores below 720 and down payments of less than 15 percent will be charged quarter-point higher fees upfront. Why? Credit scores never have been more powerful in determining the rates and fees homebuyers pay on their loans. Even more important, credit score standards are being ratcheted up dramatically.
