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Mortgage analysis   This week: July 30 - Aug. 5
  Each week, Bankrate publishes a survey of large lenders in the  
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Mortgage rates rise along with stocks

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.

Weekly national mortgage survey
  30-year fixed
15-year fixed
5-year ARM
This week's rate: 6.12%
Change from last week: +0.17
Monthly payment: $1002.02
Change from last week: +$18.06

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 credit scores.

"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 adjustment."

Punish walkaways
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.

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FHA revival
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 two ago.

"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 loans.

Bankrate.com's corrections policy
-- Posted: April 3, 2008
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