Why Credit Repair is All the Buzz
Not too long ago a credit score of 620 was considered acceptable. Not anymore, says Fannie Mae and Freddie Mac. After suffering major losses stemming from the high foreclosure and delinquency rates in the mortgage market last year, Freddie and Fannie have redefined risk, and are now charging serious fees for borrowers whose credit scores don’t quite add up.
Last month, Fannie Mae and Freddie Mac announced new 2008 Loan-Level Price Adjustments (LLPAs) and increased delivery fees. LLPAs are automatic, cumulative “penalties” based solely on credit scores. These fees have nothing to do with your mortgage company and cannot be negotiated away. While LLPAs have already started showing up on lenders rate sheets, increased delivery fees will be effective in the first quarter of 2008.
Let’s take a look at the impact that Fannie Mae and Freddie Mac financing changes have on mortgages up to $417,000, the current cap for agency loans in the majority of the country.
2008 Loan-Level Price Adjustments
LLPA Option 1* LLPA Option 2*
FICO SCORE Upfront Costs (Points) & OR Approximate Increase to
Dollar Equivalent Interest Rate
680+ 0% = $0 0.00%
660-679 .75% = $2,250 0.25%
640-659 1.25% = $3,750 0.50%
620-639 1.75% = $5,250 0.75%
Below 620 2.00% = $6,000 1.00%
*Based on Loan Amount of $300,000. Please note that this chart is meant to be a quide and that interest rates and loan programs are subject to change.
As you can see, borrowers who have FICO scores below 680 (a very good score in the past) will now be forced to pay more either in points (as much as 2% more) on in interest rate. Borrowers with FICO scores below 620 will incur the maximum adjustment.