Monday Mortgage Minute – This NEW RULE is very questionable!
Nothing dominated the mortgage and real estate space more last week than the proposed loan level pricing adjustment program that would charge loan applicants with better credit scores and larger down payments a higher fee than those with lower down payments and lower credit scores. Essentially an inversion of responsible personal credit strength and large downpayments.
When this came out last week the entire industry turned its focus 100% to this topic in what is essentially loan level price adjustments that negatively impact borrowers with higher credit scores compared to lower credit scores.
Under the new rule high credit borrowers with scores ranging from 680 to above will see an increase in the cost to deliver a mortgage to Fannie Mae – Understand, this fee is passed on to borrowers, not absorbed by the market.
These new credit score ranges make some before after comparisons tough to swallow if you’re a borrower with above 680 credit, and more than 15% downpayment in hand.
Without overburdening you with the nuances of the details the overarching take away here is that they are attempting to even out the cost to deliver loans to them across the spectrum of applicants based on credit score, which in short means it will cost less to deliver a loan to them if the borrower has a qualifying score below 680 and it will cost more to deliver a loan to them if the borrower has a credit score above 680.
This is only conventional loans. Unless noted otherwise FHA, VA are excluded from these adjustments.
Some of you may remember that during the refinance heyday just a few years ago there was a pricing adjustment added to every person doing a conventional refinance based on what their loan to value ratio was and the type of home, ultimately this was a penalty imposed on the homeowner for refinancing their property for better terms, a lower rate, during the time when by the way the Fed was buying billions of dollars of mortgage-backed securities and in the end the entire industry knew it was just a cash grab on homeowners trying to advance their personal financial position. Why am I mentioning this? I’m mentioning this because once again you’re having a agency imposed fee structure placed upon people who are responsible in order to shore up their coffers at the expense of those same people. No matter where you lie in disliking or liking this program, looking back at other similar program changes like this, they were eventually rescinded or reversed due to unpopularity, illegality, or industry pressure.
Expect that this will be the same in the weeks and months to come. As there are new changes and new details emerge about how this will impact borrowers, we will of course let you know.
Here’s what to look for this week.
On Tuesday we get the consumer confidence reading and we’re hoping for this to be a positive reading because two weeks consumer sentiment was good so there’s no reason this should be any different. But over the course of time we’re going to probably see consumer confidence get weaker as the Fed continues to fight inflation.
On Thursday we will have the advanced GDP reading and unemployment claims both of which are going to be looked at very carefully by the markets to determine if we are making progress against sustained high inflation.
Friday, Friday is the important day this week! Core PCE….the FEDS FAVORITE READING TO gauge their success (or struggle) with inflation. I’m personally expecting it to be AT or below the projection of 0.3%, man I really hope it is.
So what does this all mean for mortgage rates Andy?
Mortgage rates continue to bounce around within their recent highs and lows with no breakout for the higher or lower definitely. As I’ve stated before, when there is wild uncertainty, you have to stay on your toes and closely connected to your loan office so that on a day when rates take a dip you can snag that “lower on the day” rate.
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