posted December 12, 2007 01:13 PM            

Call it the credit-risk hangover following the housing-boom binge: Home buyers and refinancers who can't come up with sizable down payments, and whose FICO credit scores are below 680, are about to get squeezed in the mortgage market.

Giant investors Fannie Mae and Freddie Mac are imposing significant increases in fees for a broad range of borrowers who have lower than 30 percent down payments and formerly were treated as "prime" credit applicants. At the same time, the two largest private mortgage insurers -- MGIC Corp. and PMI Group -- are raising premiums on consumers who have low down payments and FICO scores in the mid to upper 600s. The added costs for some potential home buyers could mount into the thousands of dollars -- either upfront at settlement or in the form of higher interest rates.

Each of the companies says it has experienced unexpectedly high losses on loans with these characteristics and must now revise prices upward to handle the elevated risks. But some mortgage bankers and brokers say the higher costs and down payments will make homeownership impossible or very difficult for a large number of borrowers, and slow any future housing market recovery.

Though Fannie Mae's and Freddie Mac's revised fees won't take effect until March 1, major lenders who sell loans to the two investors began imposing the surcharges on applicants at the beginning of December. Some mortgage loan officers are upset that clients with FICO scores close to 700 -- far above the once-traditional 620 cutoff point between "prime" and "subprime" -- are now being charged more.

"This is outrageous," said Steven Moore, a mortgage broker with 1st Solution Mortgage in Falls Church, Va. "On a loan of $300,000 and with a credit score of 675 -- which is not a bad score -- and a 75 percent loan-to-value ratio (25 percent down payment), the cost is an additional $2,250 per loan." If the same borrower wants to do a cash-out refinancing to consolidate debt, the new Fannie-Freddie fee schedule will add another $1,500 to total costs on a $300,000 mortgage, said Moore. On a $400,000 loan, he estimates the extra fees would total $5,000.

Jeff Lipes, president of Family Choice Mortgage in Wethersfield, Conn., said the new emphasis on higher FICO scores and larger down payments could greatly complicate rate quotations. "To get any sort of quote, you're going to need to know your FICO score in advance, and before actually applying you may need to take some steps to raise your FICO score."

Under previous standards, applicants with scores comfortably above 620 "could reasonably assume" they would qualify for a good rate, said Lipes. "But now we've got this whole new gray area between 620 and 680" FICOs under the revised Fannie/Freddie risk-based pricing guidelines. Joint applicants where one spouse or partner has a FICO score below the new guidelines will need to take special care, according to Lipes, so as not to trigger higher credit-risk fees.

Lipes predicts loan officers and brokers will make far greater use of so-called "rapid rescoring" services offered by some local credit bureaus to increase applicants' scores legally by correcting errors, lowering debt utilization ratios on credit card accounts and other techniques.

Here's a quick overview of the new policies from Fannie and Freddie affecting loan applications where the down payment amount is less than 30 percent:

If the borrower's credit score is less than 620, a new 2 percent fee will be imposed.

If the score is between 620 and 639, the surcharge will be 1 3/4 percent.

If it is between 640 and 659, the add-on will be 1 1/4 percent.

On scores between 660 and 679, the surcharge will be three-fourths of 1 percent.

According to mortgage banker Lipes, if applicants choose to roll the higher fees into the interest rate on the mortgage, the new Fannie/Freddie charges generally will increase rates by anywhere from one-eighth to one-half of 1 percent.

The MGIC mortgage insurance premium increases, which were scheduled for announcement the first week of December, are expected to have the heaviest impacts on borrowers making down payments of less than 3 percent and whose FICO scores are below 660, according to company officials. On such loans, MGIC is expected to raise premiums to 1.7 percent per $100,000 of loan amount, up from the current premium level of 0.96 percent. On a $200,000 mortgage, that would raise the annual premiums from $1,920 to $3,400.

posted December 13, 2007 09:08 AM            

My score is close to 900. I refuse to ever carry a balance on credit cards and I save money when I want to buy a big ticket item.

posted December 13, 2007 10:17 AM            

My mom was a single mom but taught us (as did my dad) to never buy what you can't afford. I watched as my friends used their credit cards thinking they'd catch up later. Couples fall into the same problem when they spend beyond their means.

Sadly, I think for every couple / single mom, that really does struggle and falls into the trap because of their hardship (which is valid) there are 5 more that just spend themselves into bad credit.

Bear's ex-wife did it just because she wanted money and thought she would get bailed out. My ex fiance was the same way. I always tell people, don't put those CD's or XBOX games on credit and then just pay the min- you'll end up paying 3 times as more for it in the long run.

The Military offers classes to young Soldiers / Couples because the credit card companies seek them out.

I hold many financial institutions just as responsible for courting young kids into applying and using those cards. I especially hate the quick cash companies because they do the same thing.

posted December 14, 2007 02:08 PM            

I have a friend in Florida. She was telling me about a Brazilian scam (disclaimer: I have no idea of the facts or validity of this) where these people come to the USA, put a down payment on a pricey house so they can get a $50,000 credit line, live off it for awhile and then bail -- head back to Brazil. Then buy another fake ID (stolen Social Security number) and do it all over again. The banks are then stuck with the houses and the bad loans.

posted December 14, 2007 03:23 PM            

I'm sorry you have to go through that. I hate that companies prey on people that have financial hardships. I don't think the higher interest should apply in those cases, but for those that spend themselves into bad credit they need to have a wake up call. I am speaking of someone like my ex-fiance that went wild with his credit cards and could care less. In the case of single mothers trying to provide a decent life for themselves and their children, there should be something better available.

I feel the same about welfare. To me, it should be designed to help those that can't make ends meet due to illness, hardship or other outside factors. It should not be a program for people that don't want to work.

I am so sorry. I do know how you feel because I watched my mom go through the same thing. I had to endure as much when I was in college and first starting out. Hell, when I moved to Arizona I spent my savings trying to make ends meet and couldn't find a job for 8 months. We struggle a bit now because of Bear's ex-wife. She put bills (credit cards, student loans etc) in Bear's name, under his SS# and we are in the process of working on those issues. We were lucky we had money put away because she hit us with almost $10,000 worth of bills.

posted December 14, 2007 04:26 PM              

I live in Florida and with all the problems that we are having with foreclosures I know of several people that have been hit hard, I don't even need to pull their credit report to know what a one month late on a mortgage will do to it, it will drop about 150 points.Not to mention your chances of redoing that loan are slim, you have to wait a year before you do it.

Some banks say they are working with people to help them keep their houses but the only thing that they are doing is transfering the amount behind to the end of the loan, so it will actually increase over time because now you are paying interest on top of interest.
I am really not sure what the big idea of creating more poverty is, what are politians(the puppets) and the real owners of this country thinking, opressing people into poverty will only cause more problems in the long run.More homeless, more uneducated, crime etc.

I have a friend that made last year 75K in her job, she got laid off and can't find work, she is also a single mom , well she went to get food stamps the other day because it has been months since she has had any money coming in and her credit cards are now maxed out, she actually had to leave her house and is living with a friend in a room with her two kids; but anyway, she went to get the food stamps and to her surprise there were people driving nice cars and well dressed asking for the same help.
This is crazy! as I said, I am not sure what the big move is here with our economy, there is no way people up there do not know about all these issues.

agh! I just get so p*ssed! I hate to see my friends going through this and I also hate to see me in this position because with all I know and how I have always helped people to get into houses and have always done the right thing now I can't even sell a house or close on a loan because the banks making it so hard, I have been working so hard on several loans for months and the last one I closed on was 5 months ago.
Now I am a person that consider myself VERY smart and capable of doing better but this time around is taking the best of me, I have maxed out my credit cards and I am in debt with a good friend of mine for another several thousand dollars.

posted December 14, 2007 04:28 PM              

Fannie Mae has announced that in 2008 they will be implementing price overlays for all loan products with FICO's under 680 and LTVs > 70%, as well as loans with subordinate financing and 2 unit properties. These changes could literally pop up on the rate matrix anytime between now and then with no warning, so floating a rate, even if the bond market is down 20 basis points could prove to be very costly. Any borrower on the fence with a FICO < 680 needs to get off of it TODAY, because time is not on their side if they're looking for a better rate. The Fannie Mae price adjustments for credit scores are listed below.

All LTV's > 70%

FICO 680+ No adjustment

FICO 660 - 679 -0.750

FICO 640 - 659 -1.25

FICO 620 - 639 -1.75

FICO < 620 -2.00

posted December 14, 2007 04:33 PM              

Again, what is the idea here???? selling to other countries but our own people can't afford to live here?
Are we suppose to be forever renters now?
How do we make money anymore? how do we move the market?

I wonder most of all if people really have a clue of what this means to us, I know I am in teh business and have more insight in the issue since I do have access to a lot of people's livin rooms and I know exactly what their situations are, but what about the rest? how long are we going to let the big man scr*w us?

posted December 14, 2007 08:40 PM              

Remember there is only one of me and I have two kids no help from my ex.If I was to go somewhere as a retail store my hours would be messed up and it would conflict with me taking the kids from and to school (no school bus) and my bills would be 4 times greater than what I would be bringing in.
My only choice was a restaurant at night but those are not hiring and even then I would have to leave my kids by themselves until my roomate would come home at around 9-10 pm.
Trust me is not that easy, I have been looking at different alternatives and nothing makes sense, only keep trying what I am good at but things keep getting harder and harder and this is where it doesn't become about me anymore but as I said before, what are they thinking? There are so many people directly affected by this and they are making things harder to move the market.
Do you understand that it is like a vicious circle, no money moved , no goods sold, less jobs .... less jobs creates less oportunity to move the market even more and keep it going...
I know part of the reason is to fight inflation, but I just don't see a good outcome here...what do you think? maybe I am just being way too negative because I am working with desperate people directly...
All I know is that I get countless phone calls from people wanting to sell their houses and unless they bring those values down I will not be able to, which is fine but even when I find teh few buyers out there it is hard to approve them because now they need perfect credit and quiet a bit of money down, plus to go full doc and show they actually make the money.
Sadly a lot of people don't even show they make the money either... I'll just better start talking is such chaos.Between banks,loans, income tax issues, credit reports no wonder we are where we are.

posted December 15, 2007 01:15 AM            

Knowing how much you can make at selling houses, I imagined that anything else would be a huge pay cut.

posted December 15, 2007 01:36 AM              

What I am worried is about the whole economy of this country and the consequences of the same.

Are you a loan officer? I do loans as well.
No luck on those either, the programs through FHA for refinancing at 97% LTV are not working either.
The otehr loans to help people in difficult situations to keep their houses and freeze interest rates will not work if they are behind in their payments.Nothing that is being done is actually working and now they want to raise the rates and closing costs!!!!

Prices are rolling back so much that is just not the people that bought houses within the last 2 years, we are at 5-7 year point, and is not just here in Florida.

My sister lives in Indiana and she bought her house 7 years ago, never touched her mortgage to refinance or add to it, well, she is trying to sale her house because she is moving to Oregon and her last offer was 15K less than what she bought the house for.
And this is a modest house, we are not talking big money here.

posted December 15, 2007 01:43 AM              

And I am not talking scammers like it was mentioned, I actually haven't seen or heard in my circle of people of anyone doing that, but what about all the people that have been living here acting as normal residents.Having access to checking accounts, credit cards, car loans, mortgages etc? Those are usually your construction workers.....I guess they are just going to have to rent forever...

My point is that the rules are not being apply to all , it is ever hardly like that but now is worse.

posted December 15, 2007 04:04 AM            

I think the crisis will right itself. The government is getting involved (regardless of whether they should).

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Those are usually your construction workers.....I guess they are just going to have to rent forever...

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