Lending Rates Just Got a Whole Lot Worse
I had a bit of an “Oh crap” moment this afternoon when I got an email from one of our lending partners.
The subject line said - LOCK YOUR AGENCY LOANS TODAY- Changes Coming!
The body of the email said -
We’ve learned that we will have increased delivery fees that will impact our pricing effective as early as tomorrow morning. Please lock your floating pipeline on our website now! I have attached the FNMA announcement. All loans with FICO’s less than 680 and LTV’s greater than 70% will have significant price adjustments.
Curious, I read the attached announcement from Fannie Mae. I’m not going to reprint the entire three pages, but the key facts are these -
Fannie is very concerned with dropping house prices and the traditional 20% “buffer” lenders use has now been bumped up to 30%.
In 2007, there have been unprecedented changes in the market, including declines in national home prices that are expected to continue through the end of 2008. Delinquency rates are rising across the country, and credit losses are increasing, primarily as a result of higher severity and home price declines.
The purpose of this Announcement is to establish new standard pricing requirements for certain: (1) whole loans purchased on or after March 1, 2008, or (2) loans delivered into MBS with issue dates on or after March 1, 2008.
As such, Fannie Mae will be pricing this perceived additional risk into their loans. Borrowers with credit scores less than 680 can expect to pay an additional .75% on their loan. Less than 620 it’s 2%. Additionally, higher loan to values > 70% get an additional .25% tacked on. This policy change is for so called “prime” borrowers. Borrowers who fall into the Expanded Approval program don’t face this new criteria. Neither do they apply to loans with terms of less than 30 years.
It’s just about to get a lot more expensive for people with low down payments or even marginally decent credit to get a home loan. Thank goodness for the FHA.