While legislators are struggling to find ways to stimulate the economy and save the drowning housing market, the news that stricter credit requirements and higher fees are coming down the pipe couldn’t be timed worse.  Effective April 1, 2009,  Fannie Mae and Freddie Mac are increasing their mandatory fees and toughening their credit score and down payment rules. Under FNMA and FMAC’s revised guidelines, even applicants who assumed that their previously considered “decent” credit scores would get them favorable rates will be charged more unless they can come up with down payments of 30% or higher. What does this mean? As an example, a potential home buyer with a FICO score a few points shy of 700, who can afford down payment of up to 25%, will now be charged 1.5% “delivery fee” at closing under the new guidelines.

The justification for the changes, according to Freddie spokesman Brad German, is that “some of the loan categories and credit risk combinations targeted in the latest round of fees default at four to eight times the rate of other mortgages in the company’s portfolio.”  Due to their higher probably of loss, it’s a form of risk management. But unfortunately, these changes come at a most inopportune time as potential homeowners are already struggling to find ways to qualify for new or refinanced mortgages.
The new guidelines will re-set the standard for what used to be considered a guarantee for obtaining the optimum rates. An individual without the minimum downpayment who’s FICO score falls in the 700-720 range will now automatically have  an extra three-quarters of a point tacked on.  And those with FICOs in the mid 700’s, previously considered stellar, will now be rewarded with  a quarter-point add-on.

Buyers seeking other types of dwellings such as condominiums or multiple dwellings will not escape the new requirements. Without the 25% down payment, condo buyers will be charged a three-quarter point add-on penalty, no matter how high their credit score, simply because they are not buying a traditional detached, single family residence. Multiple dwelling buyers (duplex, triplex, etc) will be will be charged a flat 1% add-on from FNMA, even if they’ve got FICO scores above 800 and make 50% down payments.

What can we do about these unreasonable changes? Contact your local congressman– given that Fannie and Freddie have been operating under the control of federal regulators since the latter part of 2008, we need to voice our opinions regarding these latest add-on fees and requirements and hopefully, get the scrapped!

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