New Fees to Hit Good-Credit Mortgages
There's a big jump in mortgage fees coming this spring and it's headed straight for borrowers with good credit.
Fannie Mae and Freddie Mac on Monday released their updated pricing grids for mortgages and it was a shocker. Beginning April 1, 2014, mortgage borrowers with credit scores in the 700s will pay as much as an additional 1.5 percent of the amount borrowed in upfront loan charges.
For borrowers in states like New York and Florida, where the impact is greatest, that means an additional $1,500 in upfront loan charges for every $100,000 borrowed - or $3,750 on a $250,000 mortgage.
Since borrowers typically roll such fees into the loan rather than pay for them separately up front, the practical effect of the new fees will be higher interest rates on loans. The fees only affect mortgages backed by Fannie Mae and Freddie Mac, but that covers most U.S. residential mortgages.
Big hit on good, not great, credit loans
The higher fees are the result of changes to what are called loan level price adjustments (LLPAs), which is a sliding scale of fees based on the assumed risk a loan presents. Loans with lower credit scores and smaller down payments/less equity are deemed riskier, and carry higher fees.
What's really different about the new fee grid is the impact on high-credit borrowers. Currently, borrowers with FICO credit scores of 740 or above pay little or no fees for LLPAs. But as of April 1, most borrowers with scores of 740-759 who put less than 20 percent down will pay an upfront LLPA fee of 1.5 percent of their loan amount, up from 0.25 percent currently.
The biggest impact will be on borrowers in the 720-739 range, who'll pay a 2.0 percent fee on loans with less than 10 percent down, up from 0.5 percent presently. Borrowers with scores ranging from 680-719 will see their LLPA fees approximately double, while those with scores above 760 will be paying fees of 0.75 percent to 1.0 percent on loans with less than 20 percent down.
Reflects different risk assessment
It would seem then, that the Federal Housing Finance Agency (FHFA), which ordered the fee increases, has assumed that the old fee structure underestimated the risk presented by high-credit borrowers. The FHFA has served as conservator for the two mortgage guarantors since they fell back under government control in the market crash.
The figures cited above are for loans with terms greater than 15 years, including 20- and 30-year fixed-rate mortgages.
For most borrowers, the new, higher fees will be slightly offset by an elimination of a 0.25 percent Adverse Market Delivery Charge, which was imposed on all Fannie Mae and Freddie Mac loans following the housing crash. However, the charge remains in place for mortgages originated in New York, Florida, New Jersey and Connecticut.
The full fee grid, including the current grid for fees charged for loans delivered prior to April 1, is available here.