Learn the Market Conditions for Mortgage Refinances in 2011
Qualifying for a mortgage or mortgage refinance in 2011 will be harder than ever thanks to new underwriting rules Fannie Mae and Freddie Mac are rolling out in response to the record number of foreclosures in 2009 and 2010. In addition, FHA loans will get more expensive. The Mortgage Bankers Association predicts mortgage originations, which reached $3 trillion in 2005, will be less than $1 trillion in 2011, the lowest level since 1997.
Fannie Mae's new guidelines are significant because approximately 90% of mortgage loans sold in the US conform to Fannie Mae's specifications, and together, Fannie Mae and Freddie Mac buys approximately 60% of mortgages today. The new guidelines will have a tremendous impact on the mortgage market.
Here are some of the changes:
Fannie Mae and Freddie Mac are adding new fees to loans to borrowers with 720+ FICO credit scores, and raising existing loan fees. Freddie's new fees started March 1 and Fannie's start on April 1. Fannie Mae and Freddie Mac will assess a fee of 0.25% to 0.5% of the loan value on borrowers with credit scores of 720 or higher who have less than a 25% down payment. The current fee for those with credit scores of 700 to 719 who put down less than 20% of the purchase price will double to 1 point of the loan value.
On April 18, the FHA will raise its required annual mortgage-insurance premium for FHA loans by 0.25% of the loan value. FHA loans will include an upfront mortgage insurance payment of 1% of the loan amount and an annual premium of 1.1% to 1.15%.
Also on April 18, a Federal Reserve rule will change how mortgage brokers are paid by banning the so-called "yield spread premium." A yield spread premium is a rebate paid to a mortgage broker for giving a borrower a higher interest rate on a loan in exchange for lower up-front costs.
The Obama administration wants to overhaul the mortgage market, and has proposed the following changes:
- Require a down payment of at least 10% on Fannie Mae and Freddie Mac loans
- Reduce the share of FHA loans, almost 30% of the market now, up from a historical market share of 15%
- Set Fannie and Freddie loan limits for high-cost areas to $625,500 from $729,750
- Do away with Fannie Mae and Freddie Mac
The macro-economic result will be fewer qualified home buyers in the market, which will continue the overall downward pressure on home prices. This is good news for qualified home buyers looking for a bargain, but bad news for homeowners who want to sell a home that is valued at less than the balance of their mortgage.