Fannie Mae and Freddie Mac have finally done what I felt they should have done several years ago once FICO scoring became somewhat stable and reliable: they are now having price/rate additions to mortgages based on FICO scores. In addition to their loan to value adjustments for "declining market areas" such as Southern California, Fannie and Freddie are now using credit risk to price mortgages for conventional mortgage applicants.

For loans over 70% loan to value and a loan term greater that 14.9 years (this includes all interim ARMs such as 3/1, 5/1, etc since those are 30 year terms) the following adjustments are made to fee (points) or rate:

 

FICO RANGE		ADD TO FEE	or	RATE (approx)
0 - 619		2.00		0.50%
620 - 639		1.75		0.375 - 0.5%
640 - 659		1.25		0.25 - 0.375%
660 - 679		0.75		0.125 - 0.25%

 

NOTE: Typically an adjustment of 0.500 in fee equates to approximately 0.125% in rate. I.e. on a given day a borrower may have the choice between a 5.375% at 1 point loan, a 5.5% at 0.500 point loan or a 5.625% at no points loan. The chart above shows the approximate addition to rate for borrowers with FICO in the ranges listed should they desire to have a higher rate rather than bring more funds to escrow (typically recommended). Note further the listing for FICOs below 619 scores--Fannie will approve some of these borrowers using Expanded Approvals which typically come with lower loan to values and higher rates, Fannie's version of sub-prime lending.

 

Also layered into the pricing model for most California mortgages will be the additional fees for loan to values in excess of 80% being priced at the higher level (i.e. a 90% LTV transaction will be priced as a 95% mortgage and a 95% LTV transaction will be priced under Fannie's "Flex100" product).

 

As always, contact me to ensure you are being quoted accurate rates and terms for your prequalifying and loan applications to ensure no surprises or delays at closing.

 

Please contact me with any questions you may have.

Dennis

Tuesday, January 15, 2008

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