To read the fee chart, locate the intersection of your credit score and mortgage loan-to-value. The cross-section is your risk-based mortgage fee, as mandated by Fannie Mae, and represented by this formula:
Risk-based fees are relatively new to conforming borrowers; mortgage pricing was previously one-size-fits-all. Today, however, not so much.
20 different conforming borrowers might be offered 20 distinct mortgage rates and none of the them would be considered out-of-market. It's one reason why "ballparking" a mortgage rate is so darn tough these days.
But don't be discouraged if the risk-based pricing model confuses you -- it's actually one with which we're all pretty familiar. Think auto insurance.
With auto insurance, the cost of a policy increases as a driver's perceived risk to the insurance company increases. A "safe" profile, in other words, is rewarded with lower premium.
The same methodology applies to loan-level pricing adjustments and, in this sense, LLPAs are strangely fair -- the highest risk borrowers are paying the highest costs.
Fannie Mae's second pricing change, however, is not as democratic.
Across the board, Fannie Mae is doubling its Adverse Market Delivery Charge to 0.500 percent.
This is a blanket fee that applies to all mortgages that Fannie Mae securitizes, regardless of credit score or loan-to-value.
Now, consider: This is the 3rd and 4th time since December 2007 that Fannie Mae stepped between Wall Street and Main Street to alter mortgage pricing.
This is bad news because rates are supposed to be determined by the price of mortgage bonds alone.
Instead, rates are being set by the price of mortgage bonds plus whatever fees Fannie (or Freddie) tack on top.
And, so long as Fannie and Freddie project a growing number of mortgage defaults in their respective portfolios, we can expect that loan-level pricing adjustments will increase for a 5th and 6th time sometime before the New Year.
So, why is now a good time to buy a home? Because, all things equal, it's going to be a heckuva lot more expensive and a lot more difficult to get it financed in the future. Markets are still contracting, folks. Fannie's new fees are proof.
The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.
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2017 Conforming, FHA, & VA Loan Limits
Mortgage loan limits for every U.S. county, as published by Fannie Mae & Freddie Mac, the Federal Housing Administration (FHA), and the Department of Veterans Affairs (VA)