Mortgage.net - The Fed and Mortgage Rates

The 1/4 point rate cut by the Fed yesterday was disappointing for two reasons. First analysts had predicted 1/2 point, second and more important to home buyers is that the cut is unlikely to be of help in lowering mortgage payments. Sometimes a fed rate cut will result in lower mortgage rates and sometimes they even increase as a result of factors that make no sense to me. And now, regardless of which way mortgage rates go, many borrowers will see an increase soon. Why? Because Fannie Mae and Freddie Mac have recently announced 2008 Loan Level Price Adjustments (LLPAs) that are already starting to show up on lenders' rate sheets. LLPAs are automatic "penalties" based on credit scores, which tack on costs in the form of points or higher rates for most anyone with a FICO less than 720.

Weren't "penalty" interest rates on credit cards bad enough? Now they're slamming consumers with penalties on mortgages?

And then there was this article outlining another added charge on mortgages:

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