Broker's Blog

Ok, so after a long sabbatical I’m back in the blog-o-sphere…and, go figure, I’ve got something on my mind which is eating at me….

The Federal Reserve has made a big deal about their program which purchases mortgage backed securities (MBS) in order to keep mortgage interest rates low (Fed Reserve MBS FAQ). I applaud the effort, and for those with credit scores over 720 and lower loan-to-value ratios, it’s been great! What still bothers me is that at the same time the Fed is spending 100s of Billions (program allows for $500 billion) buying MBS to lower mortgage rates, the Treasury, through its receivership of the GSEs is allowing Freddie Mac and Fannie Mae to charge “adverse market delivery fees” which effectively increase the rate paid by actual borrowers. Here’s an example: A non-first time homebuyer putting 20% down with low debt to income ratios and 100 months in asset reserves would pay 5.25% with a discount point due to a 697 credit score. Were he to have a 720+ score his rate would be at or under 5.00% with no discount points. What is so risky about that scenario that deserves such a dramatic increase in rate and cost? I thought that FICO only based pricing/risk analysis was disproven by the Sub-prime/stated income loan debacle? The adverse delivery charges keep increasing and most guidelines continue to tighten, even as our government says it’s willing to do whatever’s necessary to end the housing and financial crisis. The fees have increased to such a level that the National Association of Mortgage Brokers is encouraging all originators to include the adverse delivery charges on Good Faith Estimates to clarify that these fees do NOT go to the originating lender, but are passed through straight to Fannie/Freddie (see Broker Universe / Origination News).

I think that this government 2-step is counter-productive and that those affected (all US current and potential homeowners along with anyone in a real estate affiliated industry) should make it known to our representatives in Congress (whoismyrepresentaive.com) that the adverse market delivery fees charged by Fannie and Freddie are egregious and are penalizing many hard working, bill paying Americans with good credit (since when did a 697 Fico become risky credit?) for purchasing a home in this current climate.

I should also note that at the present time these fees do NOT affect government loans. However, most government lenders have found other ways to tighten these loan parameters, including setting a minimum credit score requirement of 620 for all government loans (including Streamline Refinances and VA Interest Rate Reduction Loans, which until just recently required only a mortgage history for credit qualification), and not allowing alternative tradelines to build a credit profile.

I understand that our economy is strained and that risk management is part of any enterprise, but the magnitude of the adverse market delivery fees along with who they apply to seem to me to be out of whack and counter-productive to a recovery in housing.

Thank you for taking the time to read my comments…please let me know your opinion.