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Federal Agencies Begin Charging More For Low FICO Scores

Jon Laird

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FHLMC & FNMA recently announced new loan level price adjustments with a wide variety of risk based features. Please see below for details on the new fee adjustments:

If the down payment is less than 30% and:

Credit Score is >680 - no extra fee

Credit Score is 660-679 - .75%

Credit Score is 640-659 - 1.25%

Credit Score is 620-639 - 1.75%

No Score or Score <620- 2.00%

Does not affect My Community and Home Possible loans. They have their own fee structures.

This is more technical than many of you normally get, but this is VERY important!

These pricing “hits" will affect the wholesale cost of money to mortgage companies for borrowers with scores under 680. This will affect rate and fee structures available to those borrowers. These changes will go into effect as early as December 12, 2007 for many lenders and will affect all conventional lenders within the next 30 days or so. These pricing hits are called Loan Level Pricing Adjustments and they are cumulative. If there is another feature of the loan that has a pricing adjustment (Like manufactured homes, 100% LTV, or 40 year term) it will be added to any adjustment for credit scores. We are only showing the impact of credit scores on what it costs your mortgage company to obtain money for your loan.

For home buyers (and current home owners who wish to refinance) with modest credit scores, the effect is obvious. Loans will have higher rates and/or fees if their credit scores fall into these ranges. The credit score used is the middle score of the three national credit repositories. For couples or multiple borrowers, the lowest middle credit score is used.

Real estate agents are facing an additional challenge. Many buyers who fall under these new guidelines are going to need more help with closing costs from sellers who are already feeling a lot of price pressure. Good communications between the agents, the parties, and their mortgage company have never been more important.

If you have any questions about how you might be affected, please don't hesitate to call or email us.

Jon Laird is co-owner of Sterling Mortgage Corporation, one of Arizona's oldest licensed mortgage brokerage firms. Sterling Mortgage Corporation has specialized in manufactured home loans for more than 24 years. Jon has more than 32 years experience in home lending and is a state certified continuing education instructor. He frequently teaches manufactured home financing classes for real estate agents renewing their licenses. To read more from Jon visit:


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