Mortgage rates were mixed this week, with fixed rates rising and adjustable rates falling.
The benchmark 30-year fixed-rate mortgage rose 4 basis points, to 6.74 percent, according to the Bankrate.com national survey of large lenders. A basis point is one-hundredth of 1 percentage point. The mortgages in this week's survey had an average total of 0.38 discount and origination points. One year ago, the mortgage index was 6.66 percent; four weeks ago, it was 6.48 percent.
The benchmark 15-year fixed-rate mortgage climbed 5 basis points to 6.27 percent and the 30-year, fixed-rate jumbo mortgage was up 3 basis points to 7.68 percent. Adjustable-rate mortgages went the other way. The benchmark 5/1 ARM fell 3 basis points to 6.32 percent and the 1-year ARM dropped 2 basis points to 6.24 percent.
'Adverse market' means more fees
Mortgage rates didn't move much in the last week, but home loans are about to get more expensive for some borrowers. This week, Fannie Mae announced that it will double a fee that it introduced in December to compensate the mortgage giant for the risks of doing business when house prices are falling in much of the country.
The fee is called an "adverse market delivery charge." When Fannie introduced the fee eight months ago, it was $250 per $100,000 borrowed. Lenders paid the fee and passed it along to borrowers, either as a charge or as a slightly higher rate.
Now the fee will double to $500 per $100,000 borrowed, or one-half of 1 percent. As a rough rule of thumb, a fee of one-half of 1 percent would translate into an increase in the rate of one-eighth of a percentage point.
The higher fee will be tacked onto loans sold to Fannie after the end of September. Because it takes time to sell a loan, lenders will start passing along the higher cost to borrowers either immediately or within weeks. People in the industry expect the other mortgage-packaging giant, Freddie Mac, to follow Fannie's lead.
Because Fannie and Freddie have a hand in the vast majority of mortgages underwritten nowadays, they can charge new fees with impunity. Lenders have nowhere else to go.
Some homeowners get a break
Not every borrower will get stuck with the higher adverse market delivery charge. For borrowers with mortgage insurance, Fannie will balance out the increase with an identical-size decrease in another fee, called a "loan level price adjustment." It's counterintuitive, but here's the bottom line:
Buyers who make down payments of 20 percent or more will pay higher fees;
Buyers who make down payments of less than 20 percent won't pay higher fees, but will have to buy mortgage insurance.
The same applies to homeowners who refinance their mortgages. Those with equity of 20 percent or more will pay more; those with less than 20 percent equity won't pay higher fees, but will have to buy mortgage insurance.
It gets even more complicated for homeowners who get cash-out refinances. Some of them will see higher fees, depending on credit score and loan-to-value ratio.
Borrowers pay for lender losses
The fees are a way of recovering from the multibillion-dollar losses that Fannie and Freddie have suffered as a result of the housing meltdown. "The borrowers from this point on are shouldering part of the recovery cost," says Dan Dowling, president of United Mortgage Capital Corp., a brokerage in Altamonte Springs, Fla.
He says borrowers with credit scores above 740 will fare well, "and there is significant cost to people with anything but the best credit."
Fannie outlines various combinations of credit scores, loan-to-value ratios and fees in a document called a matrix, which is as easy to understand as the movie of the same name. As mortgage broker Dan Green writes in his blog, The Mortgage Reports: "20 different conforming borrowers might be offered 20 distinct mortgage rates and none of them would be considered out-of-market. It's one reason why 'ballparking' a mortgage rate is so darn tough these days."