Jumbo Mumbo Fees

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WE’RE HEARING well-to-do jumbo borrowers are securing better mortgage rates than the average Joe getting a conventional loan from a Fannie Mae or Freddie Mac lender.

Thanks to a Wall Street Journal article we learned the rich not only pay lower tax rates than working stiffs; they also get a better deal on mortgage rates.

The rate on a 30-year fixed-rate GSE loan was 4.73% compared to 4.71% rate on jumbo loan. Not a big deal.

But it illustrates the advantage private-label MBS issuers and banks have over Fannie and Freddie due to legacy costs. The GSE regulator has jacked up their guarantee fees to pay billions of dollars of loan losses. And GSE executives have levied loan level “rise adjustment” fees on top of the guarantee fees.

So a borrower who can’t afford a 20% or 15% downpayment to qualify for a private loan has to pay the freight for a Fannie/Freddie loan, which translates into higher closing costs and/or higher interest rate.

But the real crime is the way low-downpayment FHA borrowers are treated. They are essentially being robbed for the sins of the past.

Defaults on the 2007 to 2009 vintages have put FHA in a hole and the agency has been raising premiums for several years.

The upfront mortgage insurance premium on a $250,000 FHA-insured loan is now 1.75%, or $4,375. Borrowers getting a GSE loan with private mortgage insurance don’t pay an upfront premium. But they do pay GSE guarantee and LLPA fees.

FHA also charges a 1.3% annual premium, compared to a 0.44% annual premium for private MI.

The difference in pricing between FHA mortgage insurance and GSE loan fees/private MI is not apples to apples.

But the total monthly principal, interest and MI payment for a FHA borrower is $1,485 on a $250,000 mortgage compared to $1,340 for Fannie/Freddie borrower, according to one private MI company.

The FHA commissioner has warned Congress that FHA premiums are at the “tipping point” and they can’t be pushed any higher without hurting the FHA insurance fund.

Meanwhile, the Federal Housing Finance Agency wants to lower Fannie Mae and Freddie Mac loan limits at the end of this year. The GSE loan limit is currently $625,500 and there is talk of lowering it to $600,000.

The FHA top loan limit is $729,750 today. But it is scheduled to drop to $625,500 at the end of this year.

FHFA officials have been leaning on HUD to follow suit and lower FHA’s loan limit further, which could have implications for counties with median house prices as low as $271,050.

If the regulators are going to lower the limits, there should also be discussions of lowering the FHA premiums and GSE fees. That would help first-time buyers and the purchase mortgage market overall.

Reducing the government footprint in the mortgage market is not a bad goal. But it should benefit all borrowers, whether they are buying two-bedroom cottages or McMansions.

BLOG OF THE WEEK: Check out John McDermott’s blog, where our ace loan closing attorney has had a bit of a bad time on his own loan. John’s escrow hell on his recent refinancing had to do with the payment of real estate taxes. (Let’s hope John doesn’t join hip hop poet Lauryn Hill in the pokey for non-payment of taxes! Though why Hill is in jail while other entertainers only had to pay the money and the fines, Willie Nelson comes to mind, is unclear.) Well, they always say doctors’ children get the worst health care, so maybe a closing attorney’s work is always worst on his own loan!

OH, THOSE CRAZY VINERS: Our posters at mortgagegrapevine.com have been mulling the return on the nonprime or nonconforming mortgage market. On this thread they make a bold prediction that someone will introduce a stated-income loan a long time from now in 1992 and that millions of borrowers will be able to get loans because of this. Touche! Wonder how that worked out for them? Someone thinks a lot of money is hanging around on the sidelines just itching to get back into high-yielding subprime loans. Dream on!

MOST READ/MOST E-MAILED: It’s all about jobs, jobs, jobs, isn’t it? Today’s job report for the mortgage business (it is always a month lagging the overall one) shows a small bump in hiring. But that was for July. In August and September, the jobs news is not so good. So here, Bank of America is announcing another 1,000 layoffs. Wells Fargo announced 2,300 firings recently, if memory serves. The item on the B of A cuts, by Sarah Todd, is the most read content on our site this week. Amilda Dymi’s report on GSE loan buybacks is the most emailed content this week.

WE’VE GOT BARRY: Legendary mortgage sales trainer Barry Habib thinks things aren’t so bad in the mortgage business. Watch his video to get his full perspective. Barry started off in the mortgage business 30 years ago as a top originator, then became a top sales trainer in Act II of his career. Speaking of Act II, Barry is also an investor in Broadway shows and has had a pretty big hit with one of them, “Rock of Ages.” He even got to play himself in the recent movie based on the musical! He can cross that “acting with Tom Cruise” item off his bucket list.

Mark Fogarty is editorial director of the SourceMedia Mortgage Group and has been commenting on the mortgage market since 1984. Brian Collins is the group’s senior editor and D.C. bureau chief. He has worked the mortgage beat since 1988.