New fees for ‘higher risk’ loans

Freddie Mac set new fees for “higher risk” mortgages it buys or guarantees and said it no longer will accept most home loans that exceed 97% of a home’s value.

The government-chartered company will begin to charge lenders 0.3 of a percentage point of balances on all loans that consumers use to borrow more than 80% of a home’s value when their credit scores fall below 740, according to a memo to lenders posted on the company’s website Friday.

The adjustments are “in response to the continued deterioration of credit quality and declining home values in most areas of the country,” the memo said.

Freddie Mac in November and December announced three rounds of changes to its pricing and standards, including a new “market condition” fee of 0.25 of a percentage point on all mortgages delivered on a one-by-one basis, starting March 9. Competitor Fannie Mae made similar changes.

Congress created Freddie Mac and Fannie Mae to increase mortgage financing. The companies make money by holding mortgage assets and on guarantees of mortgage-backed securities they create out of loans from primary lenders.

Some of Freddie Mac’s changes may lower costs for consumers. Lenders will get a credit of 0.25 of a percentage point for mortgages with loan-to-value ratios of less than 60% and borrower credit scores above 700, the memo said. But fees for other loans with certain combinations of loan-to-value ratios and credit scores will rise as much as 0.75 of a percentage point.