There are some major changes in underwriting for Freddie Mac and Fannie Mae that are already starting to create dramatically higher interest rates for some buyers. Before you commit to an 8% interest rate, read this! There are other options.

Most residential loans in the United States are sold to the secondary mortgage market where the loans must “conform” to underwriting guidelines written by Freddie/Fannie. Changes that will take effect May 1 include higher interest rates for second home loans, a higher interest rate for credit scores under 780 (used to be 740), and a higher interest rate for a Debt to Income Ratio above 40% (used to not be an issue).

So what in actual real life are these numbers? They are called LLPA’s or Loan Level Pricing Adjustments. The numbers don’t equate to an actual increase in the reported percentage (which would be terrible), but instead add a small percentage increase, which varies, to the price of the loan. LLPA’s are fees charged by Freddie and Fannie to buy these mortgages, and as we all know, those fees get passed along to the consumer. Even though these don’t take effect until May 1, many mortgage lenders are calculating these new fees into the rates they are quoting and I have heard that some people are being quoted rates in the 8% range.

What can you do about it?

First, you should find out whether your lender can only underwrite conforming loans or whether they have any “portfolio” products. Portfolio products are loans made by a bank or an investor that are held in house and remain on the bank’s balance sheet. Those types of loans do not have to conform to Freddie/Fannie guidelines and are not subject to this chart of additional fees.

If you are in the market for a second home and looking for a great lender, please reach out to me, as I have contacts with portfolio lending solutions with rates in the 6’s.
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