From the Daily Record:

Although mortgage rates have settled into a trading range — in the mid 5 percent range — in the last week, Fannie Mae is going to make it a little bit tougher for many borrowers to get the very best possible rates in the coming months.

The mortgage giant that is now fully under the direction of the federal government is reconfiguring what it calls “loan level price adjustments.” In as simple terms as possible, these LLPAs work in the same way as when someone purchases a car. There is the base sticker price and then you add options to ultimately determine the final price.

In the mortgage business, everything is about risk.

The more equity a homeowner has, the less risk for a lender.

The higher the credit score — a determination of creditworthiness — the less risk for the lender.

The more assets a borrower can document, the less risk for the lender.

Each of these factors — among others — can act as a positive or negative influence on the final interest rate that can be offered to a borrower. That is why most loan officers won’t quote a specific rate until they have a complete profile of the borrower; they know if they are to talk intelligently about interest rates, they need to understand the whole picture.

And what about those homeowners who are considered a higher risk? Fannie Mae is upping the stakes for those seeking 30-year mortgages — with both fixed and adjustable rates. Borrowers who are seeking 15-year mortgages or government (FHA and VA) loans will be unaffected.

Let’s start with credit scores and loan to value.

Today, for example, if a borrower with a 665 credit score is putting down 5 percent and is borrowing 95 percent, the Fannie Mae pricing adjustment is 1 percentage point. That means a loan officer would have the option of either charging the borrower 1 point on the loan amount or absorbing it into the interest rate by selecting a higher rate. In the coming months, Fannie Mae will raise that charge to 1.75 percent.

But a borrower today with a higher credit score — 740 or above — gets a quarter of a percentage point credit, a reward for having such worthy credit. In turn, that would help a loan officer give a lower interest rate. Fannie Mae will be eliminating that credit for high loan to value loans.

Get the picture?

Here are other adjustments that are going to be affected.

If a borrower wants to do a cash-out refinance — which is viewed as risky because it is extracting equity — the pricing adjustment is going up by half a percentage point in most instances.

If a borrower is refinancing and wants to keep his current second mortgage — typically a home equity line of credit — then that loan will have to be “subordinated” to the new first loan. Therefore, a subordination agreement is required. Currently, if the combined loan to value between the two loans is higher than 90 percent and if the borrower has a credit score less than 720, then Fannie Mae would charge .25 of a percentage point. The new charge will go to .50.

Want an interest-only loan? There now will be an adjustment of an additional .25 of a point for loans with loan to values higher than 90 percent.

Want to purchase a condominium? If you put down anything less than 25 percent, then there will be a pricing adjustment of .75 of a point. .

Want to buy a two-unit residence, where you can live in one unit and rent out the other to help with the mortgage payment? Well, that adjustment will change from .50 to 1 point, regardless of how much money you are putting down.

Remember, that all of these adjustments are cumulative, so either the borrower would be charged for these adjustments or it would be built into a higher rate.

All of this continues to be a reaction to the tightening of credit. So for now, borrowers with the most home equity and highest credit scores will be the ones most insulated from these changes. Yet those at the other end of the spectrum — and perhaps the ones who need the most help — will find it tougher to get the lowest rates possible.

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