YOU Magazine - January 2008 - Attack of the Killer Fees: Why Credit Repair is All the Buzz
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Kathleen Petty     Kathleen Petty
AVP/Sr Mortgage Originator
Alaska USA Mortgage AK#157293
Phone: (907)261-3458 Cell: 223-4440
Fax: (907)929-6699
License: NMLS Unique Identifier #203077
Alaska USA Mortgage AK#157293
January 2008

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Attack of the Killer Fees:
Why Credit Repair is All the Buzz

Attack of the Killer Fees: - Why Credit Repair is All the Buzz

Not too long ago a credit score of 620 was considered acceptable. Not anymore, says Fannie Mae and Freddie Mac. After suffering major losses stemming from the high foreclosure and delinquency rates in the mortgage market last year, Freddie and Fannie have redefined risk, and are now charging serious fees for borrowers whose credit scores don't quite add up.

Last month, Fannie Mae and Freddie Mac announced new 2008 Loan-Level Price Adjustments (LLPAs) and increased delivery fees. LLPAs are automatic, cumulative "penalties" based solely on credit scores. These fees have nothing to do with your mortgage company and cannot be negotiated away. While LLPAs have already started showing up on lenders' rate sheets, increased delivery fees will be effective in the first quarter of 2008.

Let's take a look at the impact that Fannie Mae and Freddie Mac financing changes have on mortgages of up to $417,000, the current cap for agency loans in the majority of the country.

2008 Loan-Level Price Adjustments

FICO Score LLPA Option 1*
Upfront Costs (Points) & Dollar Equivalent
LLPA Option 2*
Approximate Increase to Interest Rate


0%  =  $0   0.00%
660-679 .75% = $2,250   0.25%


1.25% = $3,750   0.50%
620-639 1.75% = $5,250   0.75%
Below 620 2.00% = $6,000   1.00%







*Based on Loan Amount of $300,000. Please note that this chart is meant to be a guide
  and that interest rates and loan programs are subject to change.

As you can see, borrowers who have FICO scores below 680 (a very good score in the past) will now be forced to pay more either in points (as much as 2% more) or in interest rate. Borrowers with FICO scores below 620 will incur the maximum adjustment which, on a $300,000 loan, would amount to $6,000 in upfront costs.

"Lenders have the option of converting the fees into higher rates for customers who don't want to pay the cash up front," says In such a case, as in the above example, a 2-point fee (2% of the loan amount ) is charged to the borrower. The charge could be waived, however, in exchange for increasing the interest rate by one full percentage point. The end result would be an increase of nearly $7,500 in mortgage payments over the course of the first three years of the loan, which translates into approximately $200 more per month.

According to Fannie Mae and Freddie Mac, the FICO credit score used to determine the fees for single borrowers is the median or "middle" score generated by the three national credit bureaus. For multiple borrowers, the median score of the borrower that earns the highest income is used. In addition, requirements will vary based on the loan program and loan-to-value. For those borrowing more than 70% of the home's value, for example, credit scores must be 680 or more in order to avoid being subject to the adjustments.

Notice that the LLPAs listed above are for first mortgages without a second "piggyback" mortgage or a Home Equity Line of Credit (HELOC). Piggyback loans are mainly utilized by borrowers whose down payment is less than 20% of the sales price, a popular strategy used to avoid paying mortgage insurance premiums (PMI). For anyone utilizing piggyback loans, LLPAs apply to borrowers with FICO scores less than 700.

In today's financial environment, PMI might make a lot more sense for many borrowers, so be sure to discuss all of your options with your mortgage specialist. In the past, one of the biggest reasons many borrowers steered clear of PMI was the inability to deduct PMI from their taxes. Congress has since made PMI fully tax-deductible for individuals whose personal adjusted gross income is 100K or less, and partially deductible for those with an adjusted gross income between 100K and 110K.

What Should You Do?
Many buyers who fall under these new guidelines are going to struggle with closing costs, and may require more help from sellers. If you're planning to sell your home in the next 12 months, communication between your real estate agent and your mortgage company has never been more important. Buyers should be informed in advanced of LLPAs and how they affect their mortgage options. Sellers should insist that buyers are pre-approved and credit ready to avoid costly delays.

These Loan-Level Price Adjustments do not apply to FHA and VA loans. Qualified borrowers could benefit from utilizing these products, despite additional mortgage insurance requirements.

If you are thinking of getting a mortgage in the next 12 months, call a mortgage professional right away. Find out where you stand. These expensive fees are based strictly on your credit score. In many cases, small changes to your credit profile could yield big results that could save you thousands of dollars. For others, professional credit repair may be required, which could take up to six months or more to achieve the numbers necessary to avoid these expensive mandatory fees. Don't wait! Doing so could cause you to miss out on the lowest mortgage interest rates in years.

License AK# 157293 Washington Consumer Loan Company license# CL-157293 California Residential Mortgage Lending Act, License# 4131067

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