Fannie Mae and Freddie Mac impose a significant increases in fees

Credit standards tighten further, just one more reason why the housing market isn't about to recover any time soon:

(Washington Post) Call it the credit risk hangover after the housing boom binge. Home buyers and refinancers who cannot come up with sizable down payments and whose FICO credit scores are below 680 are about to get squeezed in the mortgage market.

Fannie Mae and Freddie Mac are imposing significant increases in fees for a range of borrowers with down payments of less than 30 percent who formerly were treated as "prime" credit applicants. At the same time, the two largest private mortgage insurers -- MGIC and PMI Group -- are raising premiums on consumers who have low down payments and scores in the mid- to upper 600s on the FICO scale developed by Fair Isaac Corp. The added costs for some home buyers could total thousands of dollars, either at settlement or in the form of higher interest rates.

Each company says it has experienced unexpectedly high losses on loans with these characteristics and must revise prices upward to handle the elevated risks. But some mortgage bankers and brokers say the higher costs and down payments will make homeownership impossible or very difficult for a large number of borrowers and will slow a housing market recovery.

Although Fannie Mae's and Freddie Mac's revised fees won't take effect until March 1, major lenders who sell loans to the two investors began imposing the surcharges on applicants this month. Some mortgage loan officers are upset that clients with FICO scores close to 700 -- far above the once-traditional 620 cutoff point between "prime" and "subprime" -- are being charged more.

"This is outrageous," said Steven Moore, a mortgage broker with 1st Solution Mortgage in Falls Church. "On a loan of $300,000 and with a credit score of 675 -- which is not a bad score -- and a 75 percent loan-to-value ratio (25 percent down payment), the cost is an additional $2,250 per loan." If the same borrower wants to do a cash-out refinancing to consolidate debt, the new Fannie-Freddie fee schedule will add another $1,500 to total costs on a $300,000 mortgage, Moore said. On a $400,000 loan, he estimates the extra fees would total $5,000.