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The Raising of Mortgage Fees by Freddie Mac and Fannie Mae

Freddie Mac is the second largest mortgage organization in the United States as has decided to raise their fees along with the Fannie Mae Foundation. Fannie Mae is introducing raised fees on mortgages that they purchase. When the companies purchase mortgages from lenders they are raising the mortgage fees because of the higher risks due to the housing slump and mortgage markets.

Freddie Mac is setting up new fees for borrowers with a credit score below 680 and that exceed the property value by 70%. In other words any home owner with a mortgage that has more than 70% of the home purchase price in a mortgage and a 680 credit score will incur new fees. The change increases from .75% to 2 % depending on the credit score. The changes will begin on March 1.

Freddie Mac and Fannie Mae had an 81% drop over the past year in new mortgages and needed to figure out a way to increase the holdings without guarantees from the government sponsored portions. Unfortunately increasing the lending standards so that they don’t lend to just anyone has seen a worsening in defaults as they are unable to adjust to the rates and prices.

Fannie Mae and Freddie Mac own about 40 percent of the residential mortgage debt. In other words of the $11.5 trillion mortgage debt in the U.S. they have a little less than half of that amount. The consumers are also going to see rate changes in fees for mortgages on two unit homes.

Another change that is occurring is the falling prices must now have a loan to value ratio that is five percent or lower than the normal or standard requirements for mortgages. In other words the mortgages will not be awarded unless the loan to value ratio meets the proper standards.

Consumers are really beginning to feel the crunch. Most default borrowers have been feeling the effects of the economy on the housing market as they loose their homes. With the new tightening of standards and increase in fees they are being affected even more. In fact it is now going to affect one in ten of the mortgage agency and thus the consumers. Fannie Mae announced the changes in November 6 and a week later Freddie Mac announced their changes. The companies’ fees are also going to apply for lenders.

Under the new changes a lender selling a mortgage to a borrower with a credit score of 675, who made less than a 30 percent down payment, will have to forfeit $2,250 in charges for a $300,000 home. The lender will then see an increase on the amount they make from the loan. Rather than making $3000 on the sale they are now going to make more due to the increase in interest rate on the loan. Fannie Mae has announced that third quarter loss has doubled due to the housing slump and they believe it will continue unless these fees are put in place.

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