Finance Friday: Fannie Mae announces risk based pricing.

Just when we think it can't get any crazier, it does.  Watching the Bear Stearns stock price drop from $60.00 per on Thursday to under $28.00 per share at the close on Friday led many to believe we would have a collapse of the financial markets on Monday.  On Sunday, JP Morgan Chase announced they would acquire Bear Stearns for $2.00 per share as long as the government agreed to assume the risk of $30 Billion of questionable mortgages.  The FED also opened the "discount window" to non-banks, agreeing to buy good quality mortgage securities. 

These actions relaxed the financial markets and prevented a "run on banks". On Wednesday, Federal regulators eased the capital requirements for Fannie Mae and Freddie Mac which will provide an additional $200 billion to help prop up mortgages.

These actions improved mortgage rates as the spread between mortgages and treasuries decreased.  Today no point low fee loans are under 6.00%.  However, many investors are beginning to implement the risk based pricing announced by Fannie Mae on March 6th.  This won't affect any buyers with FICO scores of 720 or above, but severely impacts purchasers with lower scores.  For instance, buyers with FICO's below 720 with less than 30% down will pay a .5 point (fee, not rate) surcharge.  A buyer with a FICO of under 640 will pay a surcharge of 2.50 points with less than 30% down.  Also this week many Mortgage Insurance companies have changed their guidelines in areas designated as declining markets, which covers much of California, Florida, and Nevada. 

These changes are making it difficult (if not impossible) for buyers with credit deficiencies and a lack of down payment to purchase homes.  The only positive is the new FHA limits that were announced earlier this month should help many buyers qualify.  With the demise of 100% financing FHA may be the only low down payment option for cash strapped buyers.

Guest Author Randy Kelly is a Mortgage Banker and Finance Author with Boulder West Financial Services. He can be reached on-line at http://www.boulderwest.com/.