1.5% Buyer Penalty to Help the Economy

What kind of incentive are Fannie and Freddie offering to help build buyer confidence and stimulate the economy? How about a 3/4% penalty charge for buyers with good credit that don't have 25% down payments! If your credit is under 700 try a 1.5% penalty. While I realize they are trying to cover their tail from future property value tailspins, it seems to me there needs a solution which will not prevent buyers from buying especially good credit candidates. The risk could be underwritten with perhaps a lesser penalty charged to these buyers. Some lenders are fighting this ridiculous amended clause, but unless more people are aware of this there will not be any change.

This article was posted on the NAHB e-letter I receive and I wanted to share the absurdity with my bloggers.

There are alternatives such as FHA but those come with great limitations. It is getting a little crazy out there and you need to be aware.

As of April 1, Fannie Mae and Freddie Mac are increasing the delivery fees they charge lenders based on FICO scores, downpayment amounts and other loan characteristics. Most major lenders already are pricing in these higher fees, effectively raising costs to borrowers immediately. Lenders can pass these fees on to the consumer in the form of higher interest rates rather than as an upfront charge. Under the new guidelines, even applicants who assumed that their FICO credit scores would get them favorable rates will be charged more unless they can come up with downpayments of 30% or more.

For example, a buyer with a 699 FICO score who brings a sizable downpayment of about 25% to the table will be hit with a 1.5% delivery fee at closing under the new guidelines. A buyer with a FICO score between 700 and 720 will pay an extra three-quarters of a point. Even someone with a 739 FICO — once considered a platinum guarantee of the best rates available — will get dinged with a quarter-point add-on. Condominium buyers who cannot come up with a 25% downpayment will be hit with a three-quarter point add-on penalty, no matter how high their credit score — simply because they are not purchasing a traditional detached, stand-alone house. Without congressional intervention or new marching orders from the companies’ regulator, the add-on fees are here to stay. But there’s an alternative available for just about anyone who wants to avoid the fees: Federal Housing Administration mortgages, where downpayments go as low as 3.5% and credit scores are not an issue for most applicants. (www.washingtonpost.com)
Washington Post (2/14/09); Kenneth R. Harney

FNMA Sells $7 Billion in Stock

Fannie Mae, the country's largest buyer of mortgages on the secondary market decided the risks to continue with the housing market decline put too much pressure on their return for investors and sold its preferred stock to raise capital.

The news cannot be greated with a reflection of optimism for the state of affairs for Fannie Mae and their involvement in the secondary market.

Just another sign that even FNMA bit off more than it could chew and is trying to create stability for its investors in this turbulent market.

This from Inman News


Mortgage repurchaser Fannie Mae said Tuesday it would issue $7 billion in preferred stock to raise capital and reduce the company's quarterly common stock dividend beginning in the first quarter of 2008.

Fannie Mae on Nov. 9 reported $1.4 billion in third-quarter losses, but said it had $41.7 billion in core capital on hand, $2.3 billion above minimum requirements set by the Office of Federal Housing Enterprise Oversight (OFHEO).

In a press release Tuesday, Fannie Mae officials said the preferred stock issue -- along with a smaller $500 million issue last month -- will help the company maintain a solid capital position through 2008.

The additional capital will "strengthen Fannie Mae's ability to manage the effects of ongoing volatility in the mortgage credit markets, continue to grow its securitization activities, and pursue attractive investment opportunities," the company said.

But Fannie Mae officials warned that worsening housing and credit markets, continued losses on guaranty contracts, substantial credit-related expenses, and losses on derivatives and securities “will adversely affect in a material way the company's fourth quarter 2007 results.”

In addition, the company said, conditions in the housing and credit markets, including expected further declines in home prices, “will negatively affect the company's financial condition, and results of operations in 2008.