More info on Increasing Mortgage Costs

Posted November 21, 2007

“Ask and ye shall receive”

I recently posted about the delivery fees that Freddie Mac will be imposing on loans with score below 680 and LTV’s above 70%. With that report, I have been asked several times how this will work… Will the borrower need to have an additional 2% for closing? Will this be paid in the rate? How will this work?

I do not have any “official” word, but here is how it should play out…

The delivery fee is charged to the seller of the loan… i.e. the lender. So, for example, if the lender is Wachovia or Countrywide, when they sell the loan to Freddie Mac (and even Fannie Mae) they will have to pay a delivery fee according to the borrower’s score and LTV. I assume this will be deducted from the money they earn when selling the loan back to Freddie / Fannie.

This will apply to all loans sent to Freddie / Fannie regardless of who originates the loan.. in other words, brokers and bankers alike will have to deal with this. It all comes down to when the lender sells it to Freddie or Fannie on the wholesale end after it is closed.

Now, how will it be addressed? The cost will most likely be included in the rate. The feedback I am getting is that when a loan is priced and locked, the delivery fee that the lender will need to pay will be included in the lender’s yield from the rate. So if Wachovia, for example, is getting 2% in yield when they sell to Freddie, but the new fee will eat up 1% of that yield, they will lock the rate to the borrower with a higher yield to net the same money. This would result in a higher rate to the borrower.

In other words, a better credit score will now definitely yield a better rate to the borrower! And those with moderate credit (640-680) will be impacted by this. Below 640 has already felt the crunch and will feel it even more so.

Now, one thing to consider… and please pay attention to this: The delivery fee will be imposed on lenders selling their loans to Freddie / Fannie after March 1, 2008. HOWEVER, we will start seeing the rates increase sooner than March 2008, maybe as early as DECEMBER because the loans closed in December/January may not actually get delivered until around March! So NOW IS THE TIME FOR BUYERS TO GET OFF THE FENCE!

For more information on mortgage and home financing, or for help in the Charlotte NC area, please contact Ed Nailor with 1st Metropolitan Mortgage- your Mortgage Loan Specialist.

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Ed Nailor
Home Loans in Charlotte

1st Metropolitan Mortgage
10801 Johnston Rd Suite 213
Charlotte, NC 28226