Prime Borrowers: Cost of Mortgage Money Going Up

by Alex Stenback on December 11, 2007

Wsj_spreads

To this point, prime borrowers have been relatively insulated from the effects of the mortgage mess.  There’s been some tightening of guidelines around the margins, the price of home loans for those with marginally-prime credit is already set to increase, and as can be seen seen in the graphic above, spreads over treasuries have increased (due to an increase in perceived risk for all home loans) and Jumbo (larger than 417K) mortgage rates have gotten much more expensive, relatively.

But for the most part, your average high FICO, prime-conforming (conforming = loan amounts under the agency limit of $417,000) borrower has seen very little impact as the mortgage credit markets have unwound.

This is about to change.  From the Wall Street Journal: Update: Freddie has followed Suit.

Fannie Mae, the giant government-sponsored mortgage investor, last week raised costs for many borrowers by quietly adding a 0.25% up-front charge on all new mortgages that it buys or guarantees. On a $400,000 mortgage, that would mean an extra $1,000 in fees, almost certain to be passed on to the consumer. Freddie Mac, the other big government-sponsored mortgage investor, is expected to impose a similar fee soon, according to a person familiar with the situation.

This is an across the board increase – regardless of credit score, loan-to-value, or any other factor.  Though most lenders have yet to implement this fee (goes into effect March 9th 2008, though many lenders will implement the add-on much earlier) and prime borrowers will see this increase either reflected as an up front fee, or a slightly higher rate.
Mortgage Pain Hits Prudent Borrowers [WSJ]

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