The government and the journalists seem to leave out some of the important stuff when they tout the "wonderful" lending opportunities of Fannie Mae and Freddie Mac government backed loans. We need to remember that Fannie and Freddie are in the tank, so to speak, having been bailed out by our tax payer dollars for their bad business practices started way back with the Democratic Jimmy Carter administration where the "everyone should be able to be a homeowner" started.. . Blame aside, the basic premise is that home buyers will "pay to play" with a government backed loan. Yes, you can qualify for one of these loans with a lower credit score than conventional lending- but you'll pay for it. Here's the basics:
Starting April 1 Fannie and Freddie are raising their mandatory fees, toughening credit score requirements and down payment rules.
New guidelines include fees to borrowers who have downpayments of less than 30%. Yes, you read it right.. 30%! (And you think the government may have a bleaker outlook on housing prices than they are letting on?- 30% is some MAJOR protection from prices that have already fallen some 30% or more already in some areas) Example: If you have a 699 FICO score and make a down payment of 25% you will now get a 1.5% "delivery fee" charged at closing. Score of 700-720 will pay .75%; and even a score of 739 will be charged .25%.
Condo properties are not looked on favorably at all. Basically builders went wild. Condo conversions of old apartment buildings and condo saturation in Downtown San Diego, Miami, Vegas. Investors sucked them up thinking they'd make a killing when they sold them later and builders didn't look up from their projects for long enough to see the writing on the wall of this coming crash. Condominiums have fared the worse in this housing mess- dropping in value in excess of 50% (so far). Projects stand empty and some not completed, builders bankrupt. Bottom line.. Lenders and investors don't like condos and want to be paid extra for providing funding on them. If you cannot come up with at least 25% downpayment on a condo you will be hit with a .75% add-on penalty, no matter what your credit score is, simply because its a condo.
Duplexes, where one unit is owner occupied and the other rented, will be charged a flat 1% fee by Fannie Mae- even if you have an 800 FICO and make a 50% down payment. If you want to refinance and take cash out you will be forced to pay as much as 3% if you have FICO scores on the lower end and modest equity in the property.
Fannie Mae and Freddie Mac, operating under control of federal regulators since September 2008, are bleeding BILLIONS of dollars. They claim that these fees target some of the loan catagories and credit risk combinations with default rates "four to eight times" the rate of other mortgages in the companies portfolio. Again, they are correcting going forward on PAST lending patterns that loaned money to anyone with breath. Again, not too savy investors, second home buyers, people who thought "if I don't get in now, I'll never get in" and "buy it today- who cares the cost or mortgage payment, the bank doesn't care because they'll give me the loan" and thinking they'll sell in six months to a year and pocket a huge profit.
Now that the homes are back in affordable range, and the responsible borrowers, and investors that waited to buy because they knew they couldn't afford those crazy prices a couple years ago get to PAY for everyone else's mistakes that got us in this mess in the first place. Brilliant. And one more reason that this mess will take a LONG time to play out.