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Fannie, Freddie to raise rates

By Marcie Geffner · Bankrate.com
Thursday, February 17, 2011
Posted: 9 am ET

Borrowers, get ready for higher interest rates on new conforming mortgages.

It's no secret that rates have already risen as the outlook for the U.S. economy has brightened in recent weeks. But rates on some new home loans are also set to go up regardless of economic activity.

That's because Fannie Mae and Freddie Mac, the two government-controlled entities that purchase mortgages from lenders, have announced new "loan-level price adjustments," or LLPAs, which will jack up the "pricing," aka rates, on certain new loans.

Fannie Mae's new pricing, announced Dec. 23, 2010, is set to take effect April 1, while Freddie Mac's new schedule will be effective March 1.

The price increases will be based on the borrower's loan-to-value ratio and credit score, and even those who have a large down payment and score in the 700s will be affected. That might seem unfair, but the reality is that a price increase that affected only less-qualified borrowers wouldn't accomplish much, since those borrowers by definition aren't able to get a new loan.

The rate increases might not show up in the official measures of inflation, but they are, in fact, not unlike recent rises in prices for fuel and food in some respects. Borrowers won't get anything extra, but will still pay more for the same product. The increases won't be due to increased demand or manufacturers' higher costs, but rather as a result of bad bets in the past and more perceived risk in the future. The profit motive is naturally at work as well.

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3 Comments
Teta
March 03, 2011 at 1:06 pm

Would these fee's apply to a loan already in progress? I am set to close on my home in 3 weeks. I have a locked interest rate.

Stephanie
March 02, 2011 at 1:39 pm

The mortgage industry is getting ridiculous. We tried to refinance our mortgage about 4 months ago finally saying "we have had enough" to the proposed company. They were always coming up with harder ways to prove ourselves. We were asked numerous time about a five-year-old account we had in "dispute" status. After taking out, which seemed like an act of congress in itself, we were told to get written verification. We finally said no to the hoop jumping. I feel this will ultimately hurt the industry. As frustrated as we are, we plan on paying our mortgage off early, which means less money in the bank's pockets. I think they need to re-think the strategy more. The American Dream has become the American Nightmare. I will never understand how we went from one extreme to the next. Take things in moderation!!! Old greek proverb!

Political Atheist
February 18, 2011 at 1:06 pm

These crooks should be in jail. Instead, they're able to continue to soak the very people they're supposed to help. Double dip, here we come.