Fannie Mae and Freddie Mac changes lending rules

sara

A large number of borrowers are planning to seek advantage of the lower mortgage interest rates and first-time home buyer tax credit. However, borrowers should keep in mind that lending rules have changed a lot. Fannie Mae and Freddie Mac have come up with five new lending rules.

Risk-based pricing model: Fannie Mae and Freddie Mac have come up with new risk-based pricing models. In this model borrowers with low credit scores would be charged additional fees. This model of risk based pricing is known as Loan Level Price Adjustments. Borrowers with a credit score less than 740 will have to pay this additional fee.

Lower and costlier appraisals: Borrowers will find that the appraised value of the property is quite low. In addition to this, appraisers will only count comparative property figures from the last 3 months. Most of the appraisers would act conservatively while valuing homes as they would also be under constant scrutiny. Appraisers should also complete additional research before reporting on all appraisals. Thus, they would be charging more for this extra work.

Mortgage processing fees get increased: Mortgage processing fees, i.e. fees for underwriting, appraisals, loan processing and locking of interest rate would get increased. This is because, the mortgage loans are scrutinized closely and borrowers are paying for that.

Pay points to get advertised rates: Though the borrowers always had the option of paying points but from now onwards they would have to pay points to get advertised rates.

Condo buyers face tight restrictions: Condominium buyers will have to pay higher fees from now onwards. Additionally, the mortgage may get rejected altogether if the borrower has a bad credit score or cannot pay the down payment. Borrowers will have to pay a down payment of 25% of the purchase price.

savior70 · Posted: Wed Aug 05, 2009 7:07 am Post subject:

Hi,

Thanks for sharing this update.

These new lending rules do not seem to be consumer-friendly and I'm not sure if these rules will encourage the potential borrowers to purchase a new home. It will make financing more difficult and borrowers will less than perfect credit will virtually be disqualifed for mortgage loan. I think the rules could have been made a little less stringent so people could start buying homes. This could have given the depressed real estate market a push by increasing the demand. Anyway, as things are, getting a conventional loan will now be far more difficult than before.

Jessica

I believe the changes to the Freddie Mac and Fannie Mae mortgages will require borrowers to follow a few things if they wish to get a mortgage at a reasonable rate of interest. First of all, borrowers need to arrange for a down payment worth 20-25% of their home values. The best way to do so is to accumulate funds into a savings account.

Next, you'll have to arrange for mortgage fees which can be expected to be around 3% of your loan amount. Another important step is to get a pre-qualification from a lender before you find out a suitable property.

While you make preparations to get approved for a home loan, start accumulating funds to pay points on your mortgage. Paying points is a wise decision as it helps you to get approved for a comparatively low rate mortgage. And, you can also deduct points on your federal income tax return.

One more important factor to help you qualify for a home loan is your credit score. Since Fannie Mae and Freddie Mac loans would require you to pay additional fees if your score is below 740, therefore you can well imagine how the lending rules have changed in the midst of the economic crisis. So, as a borrower, you need to pay off your debts on time, avoid late payments, charge-offs etc. Whenever you're in debt problem, talk to your creditor/lender and seek an alternative option to keep yourself current on the loan. This will help you avoid hurting your credit score.

Finally, the appraisal industry has been going through a lot of changes. So, if you have doubts with the appraisal report, talk to the lender or appraiser. If required, seek a reappraisal on your home. For this, you need to allow for enough time so that you can go for another appraisal and then proceed further with the mortgage loan process.

Regards,

Jessica.

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