Mortgage rates rise along with stocks
|By Holden Lewis Bankrate.com
Mortgage rates went up this week, coinciding with
a rally in stock prices.
The benchmark 30-year fixed-rate mortgage rose 17 basis points
to 6.12 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 0.4
discount and origination points. One year ago, the mortgage index
was 6.25 percent; four weeks ago, it was 6.32 percent.
The benchmark 15-year fixed-rate mortgage also rose 17 basis points
to 5.7 percent. The benchmark 5/1 adjustable-rate mortgage fell
12 basis points to 6.04 percent. The 30-year jumbo rose 15 basis
points to 7.52 percent.
national mortgage survey
|This week's rate:
|Change from last week:
|Change from last week:
The Dow Jones industrials climbed almost 400 points
Tuesday, and that indirectly boosted mortgage rates. A relatively
smaller decline in stock prices Wednesday wasn't enough to force
mortgage rates lower.
New fees from Fannie
It seems that a week can't go by without unexpected news coming
out of the mortgage sector. This week's surprise came from Fannie
Mae, the financial titan that buys and securitizes mortgages. Fannie
announced that it will charge higher fees on mortgages with certain
characteristics. Unless the borrower pays the fee in cash at closing,
it translates into a higher rate.
The greatest number of people will get dinged by fees levied on
cash-out refinances. Right now, if you get a cash-out refi for 85
percent of your home's value, Fannie hits your lender with a fee
of 0.75 percent of the loan amount, regardless of your credit score.
For most borrowers, that fee is transformed into an addition one-eighth
or one-fourth of a percent to the interest rate.
Soon that fee will depend on your credit score. The fee (and rate
hit) will actually be less for borrowers with credit scores of 720
or above. But the fee doubles, to 1.5 percent of the loan amount,
for people with a credit score between 660 and 680. That translates
into a rate increase of around three-eighths of a percentage point,
give or take an eighth. The fee is even higher for people with lower
"Interest rates are based on the probability of default, and
it turns out that the probabilities were wrong," says Dan Green,
a broker with Mobium Mortgage in Cincinnati. "So this is the
Fannie announced other rule changes, too, designed to dissuade people
from defaulting on their mortgages if they can afford the payments.
A lot of people have expressed worries about "walkaways"
-- people who owe more than the house is worth because of declining
property values, and who voluntarily go into foreclosure, even though
the monthly payments are affordable. No one knows how many people
are walking away, but Fannie will make it more difficult for them
to borrow money to buy houses in the future.
"We currently require four years to elapse after a foreclosure
before we will consider the borrower to have a re-established credit
history. With this announcement, we are increasing that time period
to five years," Fannie announced.
The mortgage giant also said you'll still be blackballed for three
years (instead of five) if you can prove that you contacted the
lender and tried to resolve the situation before the house went
into foreclosure. That will require a lot of documentation.
Fannie has been raising fees and tightening guidelines often in
the last few months. Things have reached the point that Federal
Housing Administration-insured mortgages are a less-expensive option
for some borrowers, Green says. It wasn't that way just a year or
"You didn't need FHA when subprime loans were prevalent and
mortgage insurers would allow you to go to 100 percent," Green
says. "Only a small sliver of general homeownership could take
advantage of the FHA." But now that subprime loans are hard
to get, private mortgage insurers are pickier, and Fannie Mae and
Freddie Mac are adding fees right and left, the FHA has moved back
into the spotlight.
FHA-insured mortgages aren't for everyone. There is an upfront
fee of 1.5 percent of the loan amount, which can be rolled into
the mortgage, and there's a monthly fee, too. But right now, the
FHA doesn't charge a higher premium to people with low credit scores.
Everyone's mortgage deal is unique, and you can't know if an FHA-insured
mortgage is going to be less expensive until the lender runs the
numbers. Green suggests asking if the lender or broker does FHA