Real Estate Market Mixed Messages - Higher Fannie & Freddie Fees Penalize Home Buyers
February 20th, 2009 categories: Home Buyers, Real Estate Market
While the new Stimulus Plan offers incentives for home buyers to buy (up to an $8,000 tax credit), Fannie Mae and Freddie Mac announce higher fees for home buyers.
From the National Association of Realtors:
Fannie Mae and Freddie Mac are both toughening their credit score and down-payment rules as of April 1.
In response, major lenders are already factoring in the higher fees, which reduces the effectiveness of the stimulus efforts.
Under the new guidelines, buyers with down payments of less than 25 percent will be charged a three-quarter point add-on penalty, no matter how high their credit score.
Buyers of duplexes, where one unit is owner-occupied and the other is rented, will be charged a 1 percent add-on.
Refinancers who take cash out will be charged as much as three points if they have a low to moderate equity stake.
Freddie spokesman Brad German says the loan categories and credit risk combinations targeted by these fees “default at four to eight times” the rate of other mortgages backed by Freddie. “We have to manage these risks appropriately,” he says.
Higher fees for people who have 20% down? Regardless of credit score?
Let me get this straight - you’re a buyer who has worked for years to save 20%, have excellent credit, and resisted the temptation 2 years ago to buy a house using a funky mortgage. And you’re the one who has to pay?
Fannie Mae and Freddie Mac, banks, governments, realtors and everyone else who makes a living when people by houses should be licking your feet in appreciation that you want to buy a house, have decent credit and have money for a downpayment.
Did I actually think future borrowers were not going to be punished for Fannie Mae and Freddie Mac’s carelessness and mismanagement?
Did I actually think future borrowers weren’t going to be the ones to pay for the people who went before them, those who can’t now or never could afford their mortgages and are now going to get their mortgage payments reduced?
Somebody has to pay for the mortgage rescue plan, and it’s not going to be those who ultimately benefit.
I have real sympathy for people who’ve lost a job or through some great misfortune cannot afford their mortgage payments. Or were legitimately duped by a lender.
I don’t have any sympathy for those who treated their home equity like an ATM. I can’t find current statistics but Naked Capitalism had a post in 2007 estimating that 50% of subprime loans were actually cash-out refinances - where borrowers used the equity in their home to pay off credit card balances, student loans, plastic surgery, new car, remodeling, etc. And these people get to not only keep their cars or the stuff they bought on their credit cards, but also get to stay in their homes and pay less?
Mad yet? This guy is.
Here are some other articles on the mortgage rescue plan and Fannie Mae/Freddie Mac’s fee increases. I’m going to go kick some dirt.
Is this in place of the 1% private mortgage insurance coverage if you put less than 20% down? Or in addition to? I guess of government is banking of very low interest rates to stick around for a while- but the initial judgment from first-time home buyers going to be sticker shock when they see what their monthly payment is going to be.
It’s an additional fee.
Interesting perspective on the recovery plan. But, I think the buyers still come out with the better end of the deal.
Buyers come out on top if interest rates stay low and prices are allowed to come down. If there is artificial propping up of the market, then the recovery will just take longer. But that’s just my cynical view…
Aside from the cash out refinance, I agree, that the government should be helping buyers with money to buy. I think too much is being served up to people who have no hope and not to people who can help themselves a bit. I think this will change. They will find people won’t take their deal. I also feel the administration will wakes up to how markets and people think.
Jessica, Jessica…
I love to be contrary so here we go. The reality is that many of the buyers making purchases in 2009 will not have to pay their closing costs due to seller paid concessions. Those that do probably don’t have strong buyer representation.
And while I agree that it is generaly depressing to see that those who made the right decision are now going to pay for the mistakes of others, isn’t this always the way? (I know the cynic in you is saying yes right now.)
So we have to grin and bear it, but likely only for a short while. I see this as an attempt to regain investor trust. We all need the investor’s to feel comfortable making loans in the current market, so if this is how FNMAE FRMAC are going to entice the investors back into the business of making loans, so be it. Once things stabilize (towards the end of the third quarter) then we may see these penalties go away. (Can you tell I’m an optimist?)
Thanks for your comment. I’m going to both agree and disagree with you.
While many buyers maybe getting their closing costs paid for, it’s not as if that money magically appears. The sellers may be giving it to the buyers but more often than not, it’s done as a gross up, where the seller give the buyers the cash but the buyer actually takes a larger mortgage. So either home sellers or home buyers pay - not the people who took out cash out refis to pay for a facelift.
A brill post please keep it up thanks