Recently Fannie Mae and Freddie Mac, the largest purchasers of conforming loans (under $417,000) instituted some pretty radical pricing changes which will definitely have an effect on the interest rate your borrowers will obtain. The pricing structure is based on credit scores and loan to value. While in the past credit scores were important to fully pre-qualify someone, pretty much borrowers with credit scores above 620 would obtain the same rate of interest on a loan as someone with credit scores over 700. Certainly there were some subtle differences, but in many cases the rate would be effected by only an 1/8%. The new changes will have a much more drastic effect. Borrowers with a middle credit score over 680 will not be affected by this change. Here is a snapshot of what will happen to those whose middle scores are under 680.
Scores less than 620 will cost 2 discount points.
Scores between 620 and 639 will pay 1.75 discount points.
Scores between 640 and 659 will pay 1.25 discount points.
Scores between 660 and 679 will pay ¾ of a discount point.
This affects all loans with a Loan to Value of 70.01 or higher (in other words, anyone with a down payment less than 30%). In addition, the points above do not include the origination fee. The no points option will still be available but at a much higher rate than in the past. Please always remember, the origination fee, while called a “point” by many, is actually a separate fee and is recognized as a separate fee by RESPA. This fee is still charged on all loans, but for the last several years has been absorbed by the borrower in the form of a higher rate when utilizing a “no points” loan. This option is still available, but now the borrower will need to take an even higher rate if they wish to absorb the “discount point charge” in addition to the origination fee.