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Mortgage rates are low but maybe not for you, specifically.

If you've ever wondered why loan officers can't give you the best "advertised rate", it's not because of a bait-and-switch scheme or something worse.  Most likely, you're being quoted higher mortgage rates because of a government mandate called Loan-Level Pricing Adjustments.

LLPAs are changes in loan costs based on your personal risk traits.

Fannie Mae and Freddie Mac first introduced loan-level pricing adjustments in April 2008 and they've been a constant cause of consternation among conforming borrowers since.

The problem is loan-level pricing adjustments aren't exactly Prime Time news and so the first time most people hear about them is at the point of application. LLPAs can raise a person's mortgage rate by a full percentage point or more.

To understand what LLPAs are and how they work, let's talk about auto insurance.

For all of us, there is some base insurance rate for which we all qualify.  It's based on our age, our credit and the ZIP code in which we park the car.  From there, however, adjustments are made -- drive a riskier car, pay a higher premium.  Have a history of accidents, pay a higher premium. Things like that.

The same goes for mortgage loans. The more the risk, the higher the rate.

A few of the risk factors that can change a person's mortgage rate include:

• Living in a condo with less than 25% equity in the home
• Having a credit score of less than 740
• Living in a 2-unit, 3-unit or 4-unit home
• Using a home as an investment property
• Doing a "cash out" refinance with less than 40% equity in the home
• Having a second mortgage to subordinate

Each of these traits -- historically -- increases the likelihood of your default.    Therefore, to hedge, Fannie Mae and Freddie Mac charge flat fees to offset potential future losses.

LLPAs are not discretionary fees; sources of profit or padding.  Nor are they junk fees.  LLPAs are mandatory costs triggered by specific loan characteristics.  There's no flexibility, either.  If you trigger the guidelines, you pay the fees.

The Fannie Mae Loan-Level Pricing Adjustment chart is as thorough as it is punitive. At least borrowers get to choose how they pay them:

1. LLPAs can be paid as a traditional "closing cost", due at closing.
2. LLPAs can be built into an interest rate. In general, interest rates increase 0.250% for each 1 percent of loan-level pricing adjustment.

It doesn't take much to trigger the risk-based pricing of Fannie Mae and Freddie Mac; a lot of conforming mortgage applicants do it.

If you've triggered the LLPA chart and want to know your options, call or . Depending on your loan traits, there may be non-government programs that can give the same great rates as Fannie and Freddie, but without the risk fees.

Be sure to ask me about it.  I answer all my own emails and would be happy to help you however I can.

For the second time in 10 weeks, Fannie Mae is toughening its mortgage guidelines again.  Again.

According to an internal Fannie Mae document, a review of the group's current "risk appetite, eligibility requirements, mortgage insurance options, and pricing" spawned changes spanning credit scoring, income requirements, loan-level pricing adjustments.

The Fannie Mae guideline changes are summarized, in part, below:

• Minimum credit score requirement raised to 620
• Total debt-to-income levels may not exceed 45 percent, except by exception
• Loan-level pricing adjustments for loans with "minimum" PMI coverage

It's the loan-level pricing adjustment part that's most interesting.

Loan-level pricing adjustments are specific fees assessed for specific risks. Based on the current lender guidelines, if your credit score is low, you'll pay an extra fee to Fannie for your mortgage; if you're doing a cash-out refinance, you'll pay an extra fee to Fannie for your mortgage; if you live in a condo and have little equity, you'll pay an extra fee to Fannie for your mortgage.

LLPAs were first introduced in April 2008. Fannie Mae has upped them nine times since.

There's lot of ways to trigger the fees.

If the concept of risk-based fees seems weird, think of LLPAs like auto insurance. Base rates are the same based on product, but the driver of a sports car will pay for insurance versus, say, the driver of a minivan.  Higher risk to the insurer means higher premiums to the owner.

Mortgages work the same way.

At least with its latest LLPA revision, Fannie Mae gets a tiny bit democratic.  It gives its mortgage-insurance carrying homeowners a choice.

1. Pay for higher levels insurance coverage month-after-month, or
2. Pay for the "old" insurance coverage plus a one-time fee, due at  closing

For every borrower, there is a clear-cut, cost-effective solution but, regardless, in both cases, the costs to finance through Fannie Mae are going to be higher.

Fannie Mae set December 11, 2009 as its "effective date" for the changes.  All mortgage approvals after that date will be subject to the new minimum FICOs, expense ratios, and LLPAs.

Better to get a good rate today than to be ineligible for a great rate tomorrow.  If I can help you plan for an upcoming mortgage, call .

Effective Tuesday, September 1, conforming mortgage approvals are due to toughen up again.

Fannie Mae is imposing strict new lending guidelines that should slow down purchase and refinance activity in Cincinnati and parts elsewhere.

In a public announcement, Fannie Mae defends its pending changes, citing high levels of unemployment, a surge in mortgage fraud, and general market fluctuations.

It's the first major conforming mortgage guideline change since April and this one is a big one -- 15 separate underwriting areas are affected.

Are sampling of the across-the-board guideline changes includes:

• Credit, income and asset documentation can't be more than 90 days old. The former guidelines allowed for 120 days.
• Lenders must compare actual federal tax returns from the IRS to a borrower's supplied income documentation. Previously, this review step was at the lender's discretion.
• "Tip" income for service persons must be documented and verified.
• Trailing secondary wage earning is now prohibited. This means that Proctor & Gamble employees relocating to Cincinnati can't use a spouse's "expected" Cincinnati income until that spouse actually has a job.
• Stocks, bonds and mutual funds are "worth" 70% of their current market value as reserve funds. Formerly, securities were taken at 100% of value.
• Retirement assets are counted at 60% of their current market value. Formerly, retirement assets were taken at 70% of value.

By themselves, these bullet points would kick a bevy of home loans from the underwriting queue.  Waiters can no longer claim tip income; relocating families can't use both spouses' income.  But of all the changes Fannie Mae is making, the biggest deal may be its new restrictions on home loans tied to 2-unit properties.

Until now, Fannie Mae had viewed 2-units homes as "safe", assigning them the same liberal underwriting policies as for a single-family home. Today, not so much.

Refinancing owners and new buyers of 2-unit homes now face higher minimum FICO requirements and lower maximum LTVs.

Using your 2-unit as a Primary Residence:

• Purchase: Maximum LTV lowered to 80%; 640 minimum FICO.
• Rate-and-Term Refinance: Maximum LTV lowered to 80%; 640 minimum FICO.
• Cash Out Refinance: Maximum LTV lowered to 75%; 680 minimum FICO.

Using your 2-Unit as an Investment Property

• Purchase: Maximum LTV lowered to 75%; 660 minimum FICO.
• Rate-and-Term Refinance: Maximum LTV lowered to 75%; 660 minimum FICO.
• Cash Out Refinance: Maximum LTV lowered to 70%; 680 minimum FICO.

Fannie Mae's new 2-unit guidelines restrict loan-to-value and raise FICO minimums by up to 15 percent and 40 points, respectively.  Because of it, fewer 2-unit mortgage applicants will qualify for mortgages.

This should slow purchase and refinance activity in the 2-unit market.

Meanwhile, Fannie Mae's changes aren't in place just yet -- September 1, 2009 is the  "effective date".  So, if you have a 2-unit home to refinance or purchase, consider getting a move on.  You don't have to be closed by September 1 -- you just have to be in underwriting.

to find out more about Fannie Mae's changes and how it might impact your pending mortgage approval. You can also ask me to to get in advance of the changes.

Mortgage approvals are getting more difficult.  Again.

After reviewing recent unemployment data and market fluctuations, plus patterns of mortgage fraud, Fannie Mae is making major mortgage guideline changes for the first time in more than 6 months.

The changes are broad, impacting 15 separate areas of the mortgage approval process as detailed in Fannie Mae's official announcement.

Across-the-Board Guideline Changes:

• Credit, income and asset documentation can't be more than 90 days old. The former guidelines allowed for 120 days.
• Lenders must compare actual federal tax returns from the IRS to a borrower's supplied income documentation. Previously, this review step was at the lender's discretion.
• "Tip" income must be verified.
• Trailing secondary wage earning is now prohibited. This means that P&G employees relocating to Cincinnati can't use a spouse's "expected" Cincinnati income until that spouse actually has a job.
• Stocks, bonds and mutual funds get assigned 70% of current market value. Formerly, this was 100%.
• Retirement assets get assigned 60% of current market value. Formerly, this was 70%.

By themselves, these bullet points would kick more than a handful of home loans out of the underwriting queue but of all the changes Fannie Mae is making, the most impactful one may new its new restrictions on mortgages for 2-unit properties.

Until now, Fannie Mae had treated duplex homes as somewhat "safe", granting them the same liberal underwriting policies as for a single-family home.  Because of defaults and fraud prevention efforts, though, Fannie Mae decided to make getting approved for a 2-unit property decidedly more difficult.

Minimum credit scores are higher and maximum loan-to-values are lower.

When your 2-unit is your Primary Residence:

• Purchase: Maximum LTV lowered to 80%; 640 minimum FICO.
• Rate-and-Term Refinance: Maximum LTV lowered to 80%; 640 minimum FICO.
• Cash Out Refinance: Maximum LTV lowered to 75%; 680 minimum FICO.

When your 2-Unit is an Investment Property

• Purchase: Maximum LTV lowered to 75%; 660 minimum FICO.
• Rate-and-Term Refinance: Maximum LTV lowered to 75%; 660 minimum FICO.
• Cash Out Refinance: Maximum LTV lowered to 70%; 680 minimum FICO.

Overall, Fannie Mae's new 2-unit guidelines restrict loan-to-value limits by as much as 15 percent and raise minimum FICOs by up to 40 points -- 2 major shifts in policy.  Because of it, going forward, fewer 2-unit mortgage applicants will qualify for mortgages and that should slow both purchase and refinance activity in the 2-unit market until the market returns to balance.

It's especially tough for owners of more than 4 financed properties.

Fannie Mae has said September 1, 2009, is the "effective date" for its underwriting changes so not every lender is underwriting to the new rules just yet.  It's expected that by August 1, all of them well.

Therefore, if you know that you have a 2-unit home to refinance, or that you need your stock and/or retirement portfolio to qualify for your mortgage, consider moving up your timeframe to the next two weeks.   Lenders often implement new guidelines without advance warning and that could leave you in the cold.

Better to get a good rate today than to be ineligible for a great rate tomorrow.  If I can help you plan for an upcoming mortgage, call or email anytime.

In February 2009, Fannie Mae rescinded a rule that kept real estate investors from financing more than 4 properties at a time.  The move increased the maximum properties financed limit to 10, giving investors a ticket to the nation's REO and Foreclosure Party.

In its widely-celebrated official announcement, Fannie Mae said upping the financed-property limit could stabilize housing nationwide. 

"Experienced investors play a key role in the housing recovery", it noted.

3 months later, however, the 5-to-10 Properties Financed program is proving to be a bust.  Despite Fannie Mae's explicit endorsement of  investor loans -- mortgage lenders are choosing to keep the investor-friendly program off their books.

Well, most of them anyway. 

Although the 5-to-10 Financed Properties program is approved by Fannie Maelenders, only a select crowd of mortgage lenders are making it available.  This is a cause for consternation among the real estate investor set.  Long-standing relationships don't seem to count for much when a bank won't do investor loans as a matter of policy.

And it's silly, really.  Fannie Mae is agreeing to buy the loans; the banks should be willing to do them. 

Fannie Mae's guidelines are pretty clear.  The national group will purchase and guarantee investor mortgages where the applicant meets the following criteria:

• Owns between 5-10 residential properties with financing attached
• Makes a 25 percent downpayment on the property; 30 percent for 2-4 unit
• Minimum credit score of 720
• No mortgage lates within the last 12 months on any mortgage
• No bankruptcies or foreclosures in the last 7 years
• 2 years of tax returns showing rental income from all rental properties
• 6 months of PITI reserves on each of the financed properties

And then, as a last step to reduce fraud, Fannie Mae's 10-financed property program requires applicants to sign a 4506-T -- a form giving lenders permission to verify the submitted-with-the-loan tax returns against the official, IRS-filed version of the same.

So, why don't all bank participate in the 5-to-10 Properties Financed program? 

The probable answer is that underwriting a 5-property-owning investor's mortgage application is hard work.  Versus a traditional homeowner that needs just a basic W-2 and paystub for an approval, a bona fide real estate investor submits complex tax returns with far more details to reconcile and verify.

The time to underwrite a non-owner-occupied mortgage application is multiples bigger than to underwrite a primary residence one.  And because the bank gets paid the same amount by Fannie Mae on both loans, it only makes sense that the banks are sticking to what's most profitable for them. 

Less work, same profit. You know which way the banks will go on that one.

But, remember -- there are banks participating Fannie Mae's 5-10 Properties Financed program .  If you have between 5 and 10 properties financed and want to purchase a new home, or refinance an existing one, let your first call be to your loan officer or bank.  Ask them for help. Then, if that call comes up empty, call or . 

My investors do allow up to 10 properties financed and I'd be happy to get you started.

Not 10 minutes after The U.S. Treasury's official Making Home Affordable announcement March 4, 2009, the nation's news sources were already printing misleading headlines and incomplete stories.

The ranged from sensational to mundane. Mostly, though, they were incomplete. Rest assured, my friends, you're not getting a 2 percent rate on your mortgage.

Here's the bullet points from today's announcement:

• Loan modification guidelines for "at-risk" homeowners are defined
• Refinancing guidelines for "underwater", on-time homeowners are not defined

I'm not going to rehash the loan modification stuff.  I'll leave that to guys that do loan modifications for a living. In a nutshell, if you've already fallen behind on your mortgage and can verify income using W-2 and tax returns, the government offers powerful incentives to both you and your lender to get you current on your home loan and keep you current.

Consider talking with a loan modification officer for specific how-tos.

For everyone else, though -- the estimated 5 million homeowners with little or no home equity -- the press release ran like The Gary Gnu Show.  Nothing bad, or wrong, happened and there was no gnus news whatsoever.

The Treasury's official announcement lacked guidance for homeowners with perfect payment history but whose home values have fallen far enough to make refinancing is impossible or improbable.  Instead, the Treasury punted to Fannie Mae and Freddie Mac.

In its 152-word, devoid-of-details paragraph regarding the Making Home Affordable Refinance Program, the Treasury said:

GSE lenders and servicers already have much of the borrower’s information on file, so documentation requirements are not likely to be burdensome. In addition, in some cases an appraisal will not be necessary.

The Treasury, in other words, left the creation of specific refinance guidelines to a different government agency. In addition -- unlike with its loan modification program -- the Treasury failed to identify which homeowners could be helped, stating "many of them will now be eligible to refinance".

Phrases like "are not likely", "in some cases" and "many of them" are decidedly vague and this lack of clarity is disappointmenting homeowners. But the Treasury's position is understandable.

Unlike mortgages in default, loans paid on-time often yield healthy returns for investors in exchange for relatively little risk.  Performing mortgages can be wrapped into mortgage-backed securities and later sold to foreign nations, pensions, and other investment vehicles.  Which, it should be noted, are not supported by American taxpayers.

So, when Fannie Mae and Freddie Mac define the terms of the Making Home Affordable Refinance Program, it's expected to be similar to the FHA Streamline Program in which no home appraisal is needed and the borrower's eligibility is defined by his history of on-time payments.

It's a bit of common sense -- if you've got a perfect payment history at your current mortgage rate and payment, there's no reason why you shouldn't be eligible for a new loan with a lower rate and lower payment.  All it does it put money back into your pocket and that's the stance that the government-sponsored lenders are expected to take sometime soon.

How soon?  Who knows. And maybe never.

So, if you've got a mortgage application in-process, follow through with it.  Close on it.  And then if mortgage guidelines change in your favor later this year or next, make adjustments as needed.

One thing seems clear, though. In reading press releases, the government is no longer harping about 4.5% mortgage rates or any other rate target.  The Fed continues to buy mortgage-backed bonds and that is helping rates stay low.  Beyond that, free market forces are in full-effect.

Mortgage rates are higher today in the wake of the Making Home Affordable announcement.

If you're shopping for a conforming mortgage right now, let me be crystal clear -- there's a near 100% probability that your mortgage rate and/or closing costs will be higher come this Monday, January 12. 

Fannie Mae's new fee structure is about to work its way through the system.

Read the detailed post on Fannie Mae's newest loan-level pricing adjustments and you'll see -- mortgage rates may be falling in Cincinnati and elsewhere, but if applying for a new home loan gets cost-prohibitive, it just doesn't matter. 

Remember, though, these changes are for Fannie Mae-bound mortgages only.  I bring up that distinction because they are plenty of loans that don't get sold to Fannie Mae and it's not always clear what those loan types are.  Non-Fannie Mae loans include:

• "Jumbo" or "super jumbo" mortgages
• FHA mortgages and VA mortgages
• Niche-lender and portfolio loan products

And, as an exception to its rules, Fannie Mae is giving a free pass to people with 15-year terms or less.  Homeowners with a 15-year or 10-year fixed rate mortgage aren't subject to the new loan-level pricing adjustments.

The majority of rate shoppers, however, are looking longer than 15 years; they're looking at conforming-sized mortgages of the 30-year fixed rate variety. 

If that's you, stop looking and start locking. Call or when you're ready.

Effective April 1, 2009 -- once again -- Fannie Mae is raising its loan fees.  You may want to bookmark this page because should mortgage rates fall over the next however-many months, you'll want to cross-reference your eligibility to secure them.

The four-part, mandatory loan fee change was announced December 19, 2008, but has yet to be picked up by mortgage lenders on their rate sheets.  In the coming days, it will.  All four changes relate to Fannie Mae's risk-based fee structure. 

More commonly, Fannie Mae's pay-to-play, risk-based fees are known as loan-level pricing adjustments.  LLPAs were first introduced in April 2008 and, in the 9 months since, there have have 4 iterations of the chart your see at top -- each more damaging to Americans in need of a home loan

On the basic Loan-to-Value/Credit-Score matrix above, locate the intersection of your credit score and mortgage loan-to-value.  That percentage is your Fannie Mae-mandated loan fee.  Because it function like "points", you can calculate your fee using the formula below:

But loan-level pricing adjustments aren't just limited to credit score and equity percentage.  The new Fannie Mae guidelines put three other loan characteristics in play, too.

• Condo and co-op mortgages over 75% LTV : Add 0.750 percent to fee
• Interest only mortgages : Add 0.250 percent to fee for ARMs, 0.750 for fixed rate
• Mortgages under 75% LTV with subordinate financing : Add up to 0.500 percent to fee

And, don't forget that the existing LLPAs still apply.  2-units pay 1 point, cash out refinances pay some more.

The good news here is that loan fees don't have to be paid in the form of cash due at closing -- they can be financed right into your mortgage rate.  Historically, 1 percent in fees could be offset via a 0.25% increase to the mortgage rate.  But factoring in the cumulative size of the adjustments, this could mean a half-point rate increase or more.

So, even though mortgage rates may fall in the future, applicants subject to risk-based pricing may find that risk-adjusted interest rates aren't be lower at all.  And for people in cities like Chicago or New York where condos and co-ops are plentiful, it's even less likely.

Now, don't be discouraged if the risk-based pricing model confuses you -- it's actually one with which we're all pretty familiar.  Just 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 -- Fannie Mae's highest risk borrowers are paying the highest costs.

But where it gets tricky is that it's becoming increasingly difficult for mortgage rate shoppers to look at published rates online and answer "How do these rates apply to me, specifically?"

And taking that a step further, it's becoming more difficult for guys like me to "ballpark" a rate.

It used to be easy.  Loan officers could watch the mortgage-backed bond market and determine whether or not mortgage rates were rising or falling.  This is because bond prices set the conforming mortgage rates for Main Street America.

Today, however, bond pricing is just a baseline.

Since April 2008, Fannie Mae has stepped between Wall Street and Main Street nine times 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 mortgage bond pricing plus the fees that Fannie Mae tacks on top.

Watch this 5-minute video on the mortgage market and you'll understand what I mean.  Guidelines are shrinking, defaults are rising, and underwriting is a giant kludge.

So, why is now a good time to buy a home or refinance?

Well, for one, these latest LLPA have yet to work their way into the rate sheets.  All else equal, rates/fees are lower today than they'll be in a few days.   But, secondly, and perhaps, more important, is that this likely won't be the last change we see from Fannie.  It will be more difficult to get it financed in the future. 

Markets are still contracting, after all.

Sunday, the government announced that it will takeover Fannie Mae and Freddie Mac and assume their respective operations.  Mortgage-backed debt is now government debt.

But for all the front page stories today, there's suprisingly little coverage about how the news impacts homeowners in need of a mortgage.

Mortgage rates are down sharply today, and possibly forever.

See, when Fannie Mae was first created in 1938, it was a federal government entity; a child of the parent government.  Fannie Mae operated that way for 30 years. 

Then, in 1968, Fannie Mae went on its own.

Only saying that Fannie Mae was "on its own" wasn't really true.  Despite the spin-off, the federal government continued to give its mortgage child preferential tax and oversight treatment, plus an unspoken promise to guarantee its debts.

Think of it like when the child of well-known, wealthy parents starts his own business.  There's going to be risks, but there's also going to be that thought in the back of everyone's mind that there's no way the parent is going to let the child fail.

This is how Wall Street looked at Fannie Mae.

For years, Wall Street endured Fannie Mae's accounting issues, leadership scandals, and weak balance sheets, knowing that the mortgage group's parent was just a cab ride away.  Wall Street harbored a deep-seated belief that should things get really bad for Fannie Mae, the government would step and take over.

And, that's exactly what happened.

As of today, mortgage debt is government debt and by the transitive property of risk premiums, mortgage debt is now risk-free.  Therefore, conforming mortgage rates are down.

I spoke with Beejal Patel of First Business last week on Fannie Mae and Freddie Mac's new mandatory loan fees.

The story is especially timely because mortgage servicing data showed that a greater number of "prime" mortgages defaulted in July 2008 than sub-prime ones.

Now, the data is somewhat misleading because the total number of sub-prime mortgages pales next to the number of prime mortgages, but it's still important to market psychology and to Fannie and Freddie.

Fannie Mae and Freddie Mac are the primary insurers of prime mortgages.  More defaults mean that it's highly likely that the two firms will raise fees again and further tighten mortgage guidelines over the near-term.

We talked about this outcome in a popular video from early-2008.

The story can't get enough press because as Fannie and Freddie tighten the spigots, it creates an uncomfortable lending situation for 2009's home buyers and for current homeowners looking to trade out of their existing mortgage -- adjustable-rate or otherwise -- in favor of a new one.

In other words, if low mortgage fees and common sense guidelines are bacon, Fannie Mae and Freddie Mac's recent changes are most definitely not bacon.

Effective October 1, 2008, Fannie Mae is making home loans more expensive for Americans.  You may want to bookmark this page because where Fannie goes, Freddie often follows.

The first part of Fannie's two-part change is a remodel on its risk-based fee structure, also known as loan-level pricing adjustments.  The original model was eighty-sixed after just 12 weeks.

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.

Everyone pays.

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.

Watch this 5-minute video on the mortgage market and you'll understand what I mean.  Guidelines are shrinking, costs are rising, and underwriting is a giant kludge.

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.

We all have a different definition of fun.  For me, it's taking the weekend to do some light reading.  Specifically, Freddie Mac's 1,394-page filing with the SEC. 

Hold your laughter -- mortgage market insight is a major reason why my clients love to have me on their side.

The SEC document itself is kind of a bear so let's just skip to page 72 and read the part that matters to the average, everyday American home buyer and homeowner. 

From Freddie Mac:

"We expect to continue to pursue increases to our management and guarantee fees and delivery fees on bulk and flow transactions to better reflect our expectations of future default costs."

Now, if that passage confuses you, don't be upset.  It's written to confuse you.

See, there's a good reason why SEC filings don't read like Goodnight Moon.  Companies often prefer to obfuscate, especially when reporting financial stability to the SEC.  As a result, SEC filings are written in a language that rivals leetspeak -- if you're not on the inside, you have no idea what you're looking at. 

So, allow me to translate.  In English, the passage from Freddie Mac's SEC filing reads:

"To pad our bottom-line against foreclosures, we plan to increase loan-level fees for all conforming borrowers."

Loan-level fees, you'll remember, are mandatory charges on a mortgage.  Not closing costs, per se, but an interest rate adjustment to every mortgage application. 

In this sense, Freddie Mac's plan to add new loan-level pricing adjustments is like a tax on borrowing and would mark the third round of such fees since loan-level pricing adjustments were first introduced December 2007.

Mortgage rates used to based on the price of mortgage bonds alone.  Today, it's bond prices plus fees from Freddie (and Fannie).  In other words, even if Wall Street mortgage rates fall later this year, Main Street mortgage rates could still rise because of new, mandatory borrowing fees for all mortgage applicants.

Therefore, as we've talked about before, if you're in the market for a new mortgage, time is not your friend.  The longer you wait -- all things equal -- the more likely you'll pay a higher interest rate to borrow money.

Especially if mortgage defaults rise.

This weekend, Fannie Mae is overhauling its mortgage approval system.  Earning an "Approve/Eligible" is going to be decidedly tougher than in the past.

For home buyers that have been in the market since January, this is not news; Fannie has been steadily trimming its serviceable market.  Its changes were like duct tape on a leaky vessel.

Starting Monday, it's a brand-new bag and approvals may be sparse.

The good news for borrowers is that Fannie Mae is warning us of the change and will honor all approvals on the "old" system for 120 days. 

Therefore, if you know you'll need a new conforming mortgage within the next 4 months and don't already have a Fannie Mae pre-approval, type this BASIC program into your Commodore 64 and watch the output:

10    Give a complete mortgage application to your mortgage lender
20    Goto 10

Here's a quick look at the new guidelines and what's changing:

Read the rest of this entry »

UPDATE (August 4, 2008): Fannie Mae updated its loan-level pricing adjustments.  This post is no longer valid.  It has been updated at The Mortgage Reports.

You keep hearing (and watching) me say that mortgage rates are down, but that not everyone is eligible for the lower rates.  This chart should help clarify.

To read it, just find the intersection of your credit score and loan-to-value.  The number in the box is the mandatory mortgage fee that mortgage financier Fannie Mae tacks on to your closing costs.

The fee is calculated as:

(Mandatory Fee) = (Loan Size) * (Mortgage Pricing Adjustment) / 100

These added costs are making conforming remortgages cost-prohibitive for a lot of Americans.

Read the rest of this entry »

Mortgage rates have been trending lower for the last months or so. 

Unfortunately, most people can't take advantage -- government-sponsored mortgage financiers have added mandatory mortgage fees that negate the discount.

It's like buying an item on sale, but having to pay twice the sales tax.

Read the rest of this entry »

For mortgage lenders, credit scores are a terrific predictor of whether a homeowner will pay on a mortgage. 

The lower the credit score, the less likely the homeowner will pay the mortgage on time.

To protect their portfolios from the riskiest borrowers, therefore, mortgage securitizers Fannie Mae and Freddie Mac are adding credit score-based fees to their loan pricing models. 

This is in addition to the quarter-percent "delivery fees" on all loans effective early-March.

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For the first since the dotcom era, the words "March First" will be associated with excess and speculation.

Effective March 1, 2008, conforming mortgages will carry new fees designed to shield Fannie Mae from further weakness in the housing sector.  This news comes from Fannie Mae's lender-specific Web site.

The site carries an announcement titled "Adverse Market Delivery Charge".  In it, Fannie Mae announces that a 0.250% fee will apply to all loans that it guarantees, effective March 1, 2008.

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Conforming loan limits will be higher in 2006. 

Conforming mortgages are so named because they "conform" to rules of the government agencies that buy mortgage loans from mortgage lenders.  Those agencies are named Fannie Mae and Freddie Mac.  The limits exist to help Fannie and Freddie limit their overall exposure to the housing market and better securitize loans for investors.

The 2006 conforming loan limits will differ by property type and reflect the nation's increasing home values. In 2006, the new limits will be:

• 1-Unit: $417,000
• 2-Unit: $533,850
• 3-Unit: $645,300
• 4-Unit: $801,950

Mortgage loans for more than the conforming loan limits are relegated to "jumbo loan" status.  All things equal, jumbo loans are more expensive than conforming loans because they are not guaranteed by Fannie or Freddie.

In 2005, the 1-Unit conforming loan limit was $359,600.  Therefore, any homeowner whose mortgage balance is between $359,600 and $417,000 can convert an existing jumbo loan to a conforming loan and possibly save money each month.

In addition, homeowners with sub-prime mortgages in the $400,000 range may also benefit from switching into a conforming mortgage product with a lower rate. 

As recently as this summer, sub-prime rates for 30-year fixed mortgages were lower than the equivalent jumbo 30-year fixed mortgage, but higher than the conforming rate.