Mortgage Rates on a Summer Day & Adverse Market Pricing
Rhonda Porter on 08 15, 2008
How lucky am I? It’s a beautiful sunny 85 degrees in Seattle and mortgage rates, for the most part, are pretty much the same as what I posted last week (as of 1:00 today). That makes for a real easy post! 
Well…almost. As I price out mortgage rates with the various resources we have, there is quite a difference. Normally, banks are all within a close range of each other. However, since Fannie and Freddie are adjusting their LLPA (adverse market pricing) effective on loans purchased by Fannie beginning October 1 for Fannie, Freddie follows in November), some lenders are all ready factoring in the price hits. Others are not. Right now, if you’re not working with a Correspondent Lender or Mortgage Broker (where they shop rates for you), it pays to shop the various mortgage banks. As we draw closer to early September, we’ll see everyone pull closer together and less of a divide.
Here is the Adverse Market Delivery Charge (this is separate from the credit score based pricing) on loans purchased from Fannie on October 1, 2008 or later which are to price (not rate) for mortgages with terms greater than 15 years:
Loan to value 60% or lower
Credit score 700 or higher: 0.25% add to price (improvement)
Loan to value 60.01 – 75% (no changes w/Fannie’s LLPA, check out my previous post for the hits. Fannie added more loan to value brackets for their adverse market pricing)
Loan to value of 75.01 – 80%
Credit score 720 -739 = 0.25% price hit
Credit score 700 – 719 = 0.75% price hit
Credit score 680 – 699 = 1.00% price hit (this is approx. 0.25% to rate on average)
Credit score 640 – 659 = 1.75% price hit
Credit score 620 – 639 = 2.75% price hit
Loan to value 80.01 – 85%
Credit scores 720 and above = 0.25% price credit (this is not a typo. The higher ltv has better pricing than under 80% if you compare above–yes the borrower will have private mortgage insurance…but…).
Credit scores 680 – 719 = 0.50% price hit
Credit scores 660 – 679 = 1.50% price hit
Credit scores 640 – 659 = 2.00% price hit
Credit scores 620 – 639 = 2.75% price hit
Loan to values greater than 85%
Credit scores over 720 = no price hit
Credit scores 680 – 719 = 0.25% price hit
Credit scores 660 – 679 = 1.00% price hit
Credit scores 640 – 659 = 1.50% price hit
Credit scores 620 – 639 = 2.25% price hit
FHA mortgages will continue to become more and more attractive as the conforming guidelines continue to be challenging and the loans are becoming more expensive. Any one considering obtaining a mortgage should make sure that their loan originator is FHA approved (check out HUDS approved lender list)–even if the borrower doesn’t think they’ll need an FHA mortgage. It may prove to be a better loan and odds are a loan originator who is not able to legally provide FHA financing will not suggest you seek out a loan originator who can provide FHA loans.
About the Author: Rhonda Porter
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12 Responses to “Mortgage Rates on a Summer Day & Adverse Market Pricing”
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I have to jump on here and say Rhonda’s right on the money regarding FHA.
Not only make sure your lender is an FHA-approved lender, make sure their staff (loan originator, loan processor, underwriters) has experience originating FHA loans.
Rhonda says, “a loan originator who is not able to legally provide FHA financing will NOT suggest you seek out a loan originator who can provide FHA loans.”
Emphasis mine.
Continuing on, a loan originator who is not working for an FHA approved lender may try to earn a fee for taking the loan application and then refering you on to another person, who does the majority of the work.
HUD has clear rules surrounding payment of a fee for services to LOs who are not an employee of an FHA-approved lender.
However, there are many hungry salespeople out there who may have to make a choice between feeding their family that month or following HUD’s rules.
Jillayne, I recently closed a FHA jumbo purchase where the LO had the buyer believing they were getting a FHA loan. Thankfully the buyer began to question the LO’s expertise. This LO was charging a 1% orig and a 1.5% discount–I truly beleive this LO was going to try to illegally broker the FHA transaction. He told the buyer that because his credit score was under 680, there was a 1.5% discount fee w/the pricing. It really makes me sick that all of the bad actors haven’t shrivelled up and blown away yet.
Sorry I didn’t post rates today…I’m just back from a family vacation on Lake Roosevelt. I will tell you that I’m going through emails and some lenders are beginning to cut back on “alternative credit” with FHA mortgage loans.
Noticing more lenders that are all ready implementing the new adverse market fees (so that once the loans are sold to Fannie, they’re priced correctly)…as I’m going through my emails…I’ll keep posting significant changes on the last rate update.
Increased cost for lock extensions w/a major bank we work with:
Number of Days Extended Current Price Adjustment New Price Adjustment effective 8/20/2008
15 -0.188 -0.625
30 -0.375 -0.750
45 -0.500 -0.875
60 -0.625 -1.125
(the first column is the old cost and the second is the new–in case this post comes out jumbled).
I posted rates this morning @ http://tinyurl.com/ratesAug25 and Friday you’ll find rates here @ RCG.
One major lender is requiring 4506Ts on all loans excluding FHA/VA… lots of quality control going on…wonder why?
Rhonda there was an article on housingwire this morning indicating the mortgage fraud in the 2008 vintage pool of RMBS is very high.
Jillayne, thanks for that–my first reaction was “no way”…but…
“That three of the five top states for fraud are those with deeply-troubled local markets is telling, and suggests strong growth in scamming of troubled homeowners; it also likely shows just how far some troubled borrowers will go to get a new loan.”
http://www.housingwire.com/2008/08/25/for-2008-vintage-fraud-abounds-in-florida-california/
That’s silly. Why would they require a 4506T? Wouldn’t a 2508S be much better? (In other words, what’s a 4506T?)
sorry Kary…I’ve addressed 4506T’s before…but I’m not on this post. A 4506T is a form that lenders may use to verify that the income used on the loan application matches with what the borrower has reported to the IRS.
This form is used to detect income fraud.
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