With Increases To Its Fees, Fannie Mae Makes Buying A Home More Expensive

Fannie Mae announced a new risk-based pricing model and additional mortgage delivery fees this week, adding to the cost of buying a home. Risk-based pricing was first introduced by Fannie Mae this past April. It added new, mandatory loan fees for high-risk borrowers while rewarding a small group of low-risk borrowers with fee credits.

In the updated model, even 720 credit scores with a 20 percent downpayment won't protect mortgage applicants from the risk-based fees and they can range as high as 2.750 percent, depending on credit scores and downpayment size. 

Fannie Mae will continue the practice of rewarding high-downpayment borrowers with fee credits. Fannie Mae's second pricing change involves the Adverse Market Delivery Charge and it is not risk-based -- it applies to all applicants equally.  First introduced in December 2007, Adverse Market Delivery Charges are mandatory surcharges on all conforming mortgages.  The fee was initially a quarter-percent.  It's now doubled to 0.500 percent. Combining risk-based pricing and delivery fees, mortgage applicants have two choices to pay them:

1. As a one-time fee, paid at closing, payable to the lender
2. As an interest rate increase, payable month-after-month to the lender

The one-time fee is calculated by multiplying to fee amount by the applicant's loan size and dividing by 100.  The interest rate increase is calculated as a general rule, where each 0.500 percent in fees can be substituted for a 0.125 percent increase to a mortgage rate. The fees become 'official' October 1, 2008, but lenders are expected to deploy them much sooner.