Daily Real Estate News  |  December 12, 2007  |   Tougher Standards Drive Up the Cost of Homeownership
Even borrowers with decent credit are beginning to feel the mortgage crisis pinch.

Fannie Mae, soon to be followed by Freddie Mac, has imposed an extra 0.25 percent upfront charge on all new mortgages that it buys or guarantees.

In a statement, Fannie said the new fee is needed "to ensure that what we charge aligns with the risk we bear." The National Association of Home Builders labeled the fee "a broad tax on homeownership" because more than 40 percent of all mortgages outstanding are owned or guaranteed by Fannie or Freddie.

Mortgage insurers have raised premiums for certain borrowers and tightened standards. PMI Group Inc. has stopped writing mortgage insurance for borrowers with credit scores below 620 who are financing more than 95 percent of their home's value. Triad Guaranty Insurance Corp. has stopped providing mortgage insurance on option adjustable-rate mortgages, which carry low introductory rates but can lead to a rising loan balance.

The bar for credit scores is rising, too. "Historically, lenders would consider top-tier credit [a score of] 680," says David Soleymani, a mortgage broker in Los Angeles. "Now, many of those lenders want to see a 720," but are rewarding such borrowers with better rates, he says.

Source: The Wall Street Journal, James R. Hagerty and Ruth Simon (12/11/07)