No, this isn't a rerun of a previous post. Fannie Mae did toughen its guidelines ten weeks ago. And it's doing so again.
Here are the latest changes:
- Lowered debt-to-income ratios to 45% maximum
- Minimum credit score increased to 620
- More loan-level pricing adjustments when MI is involved
Loan level pricing adjustments (LLPAs) can be found in Fannie Mae's matrix (aka the Chart of Death) and can be unbelievably onerous.
Loan-level pricing adjustments are surcharges assessed in addition to your regular loan fees--the lender doesn't keep them; they go to Fannie Mae (and Freddie Mac has its own version of this as well). And they are very difficult to escape--if your credit score is anything less than excellent, you pay. If your loan-to-value isn't 80% or lower (in some cases if it's higher than 60%!) you pay. f you're doing a cash-out refinance, you pay. If you finance a condo or manufactured home, you pay. If you look at Fannie Mae's examples at the end of this chart you can see very realistic scenarios in which borrowers are clobbered for nearly four points in additional fees for having a credit score of 680 (which used to be considered respectable if not stellar) and getting a cash-out refinance of 85%. On a $300,000 loan, that comes to $11,625 in extra fees!
This latest increase is the ninth.
What can those with bad or just okay credit do to avoid LLPAs? Well, there is FHA--you can get cash-out to 85% with NO surcharges. If buying, even if you have a decent-sized down payment, say ten percent, it may be advantageous to you to pay the mortgage insurance premium (MIP) instead of Fannie Mae's surcharges. And even bad credit or sub-prime lenders may offer a better deal than Fannie and Freddie--the days of assuming that conforming financing is the cheapest are over.
