Effective October 1, 2008, Fannie Mae is adjusting the cost of mortgages from 0.25% to 0.50%. Freddie Mac will follow on November 7, 2008 with an add of 0.50%. Consumers will most likely not see this from their end–it will all ready be factored into the pricing of their rate.
Some lenders will begin pricing in the fees before Fannie and Freddie (conventional financing) as the dates are for when loan files are delivered to them–not originated or locked. A lender does not want to get caught with a rate where they’ll owe Fannie or Freddie 0.5% more in fees per file come October…in fact, I’ve noticed that a few lenders have all ready started incorporating these fees into rates this week.
A half point in fee (or 50 bps) typically equals about 0.125-0.25% to rate depending on what pricing is when the mortgage interest rate is locked. The amount of the fee (referred to as LLPA or Adverse Market Fee) varies depending on credit score, loan to value and program. Fannie Mae has added loan to value brackets from the previous guide over 70%. The new LLPA (loan level price adjustment) matrix is more complicated than the earlier one as well.
This is one reason to work with a Mortgage Professional who has the ability to shop various banks and lenders during a transitional period such as this. For example, assuming a lowest mid-credit score of 679 (two borrowers) at an 80% loan to value for a purchase, the difference between lenders who are all ready factoring the "adverse market fee" is 0.75% to fee. Based on a loan amount of $400,000, this would cost an extra $3,000 for the same rate or about 0.25% more in rate!
The closer we near October, the more lenders will start pricing in Fannie’s adverse market fees.