Mortgage News

As the mortgage marketplace braces itself in anticipation of bad numbers to be reported today by Fannie Mae, more bad news for borrowers emerged yesterday. The Mortgage Reports website reported yesterday that Fannie Mae has added new risk-based pricing and "adverse market" fees to the costs that must be borne by mortgage applicants. The article further noted that, "where Fannie goes, Freddie often follows." So a similar move from Freddie Mac is likely to follow.

The changes in risk-based pricing make some sense. In essence, like an auto insurance policy, higher risk borrowers will pay higher fees under the new pricing. Borrowers with the lowest acceptable credit scores will find that the mortgage rates offered to them will be up to 2.75 percentage points higher than borrowers with good credit, right off the bat.

But the news gets worse with the "adverse market delivery charge" fee which doubles from .25% to .50%. In short, everyone pays for the mess. As The Mortgage Report observed, "This is bad news because rates are supposed to be determined by the price of mortgage bonds alone. Instead, rates are being set by the price of mortgage bonds plus whatever fees Fannie (or Freddie) tack on top."

This is not unexpected given current market conditions, but it also places one more burden on a market that is having trouble making sales. Mortgage applications have slowed to a five-year low, and that decline isn't expected to reverse any time soon. Now the prospects for reversal have just become a little worse.

About the only good piece of news for borrowers is that overall mortgage interest rates held steady at an average of 6.52%, the same as last week.