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Freddie Mac delivers new low-down loan

Freddie Mac delivers new low-down loan

What’s up with mortgage rates? Jeff Lazerson of Mortgage Grader in Laguna Niguel gives us his take.


From Freddie Mac’s weekly survey: The 30-year fixed rate dropped nicely, landing at 3.78 percent from last week’s 3.86 percent. The 15-year fixed improved as well, to 3.06 percent from last week’s 3.10 percent.

The Mortgage Bankers Association reports a four percent drop in loan application volume from the previous week.

BOTTOM LINE: Assuming a borrower gets the average 30-year conforming fixed rate on a $ 417,000 loan, last year’s rate of 4.32 percent and payment of $ 2,068 is $ 130 more than this week’s payment of $ 1,938.

WHAT I SEE: From rate sheets hitting my desk that are not part of Freddie Mac’s survey: Locally, well qualified borrowers can get a rate of 3.25 percent on a 10-year, fully amortized fixed, 3.375 percent on a 15-year fixed, 3.625 percent on a 20-year fixed and 3.875 percent on a 30-year fixed, all with no-closing costs.

WHAT I THINK: Starting Monday, Freddie Mac brings to you and yours a hot new loan product for just a 3-percent purchase down payment or 3-percent equity in the event you want to refinance.

Having little equity, being able to possibly reduce your interest rate and reduce your more expensive monthly mortgage insurance is a homerun.

Freddie calls it Home Possible Advantage.

Here’s what’s really important. You do not have to be a first-time buyer.

If you are purchasing, you can use 100 percent gift funds for your down payment, closing costs, escrow impounds. No payment reserves are required.

The first trust deed must be a 30-year fixed, fully amortizing loan.

Approved second mortgages – dubbed Affordable Seconds by Freddie – are allowed to cover settlement charges up to 105 percent of the property value. This is also known as a silent second. No payment is required on the second mortgage under this program until after the fifth year.

The monthly mortgage insurance charge is extraordinarily inexpensive for this low-down loan. The lowest middle FICO score of all borrowers factors into your actual mortgage insurance expense.

The maximum Orange County loan amount is $ 417,000. You must occupy the property as your residence. You can only purchase a one-unit property (single family home, condo, town house).

The maximum Orange County household income allowed for this program is $ 91,980. There is no income limitation if you are buying in a designated underserved area.

If the lender is using Loan Prospector, Freddie’s automated underwriting engine, there is no mention of minimum credit score or debt-to-income ratios, according to Freddie Mac’s program fact sheet. “All factors are considered, case-by-case,” said Brad German, Freddie Mac spokesman.

In other words, don’t assume you can or can’t qualify. If you have a lower credit score and have offsetting strengths like an excellent job history, you might get the green light.

Beware. Several months ago, Fannie Mae resumed its first-time buyer, 3-percent down payment program, named My Community Mortgage.

I personally have seen no promotion of this product through my wholesale lenders. An industry expert told me that program has seen little volume as lenders have been loath to promote it because the minimal mortgage insurance covers only 20 percent of the loan-to-value if you default.

The standard Fannie 3-percent down insures 36 percent of the loan-to-value. And, steering borrowers into Federal Housing Administration financing earns the lenders more income and less exposure than any of these programs.

Fannie Mae spokesman Andrew Wilson was not able to provide any loan volume numbers for the My Community Mortgage program.

The required mortgage insurance for Fannie Mae’s standard 3-percent down loan can cost almost double the monthly mortgage insurance charges of the My Community Mortgage, according to private mortgage insurer MGIC.

Make sure you specifically shop for the Freddie Mac Home Possible Advantage program, or alternatively, Fannie’s My Community Program.

Another reason to consider the Freddie program is you can eventually get the mortgage insurance removed under terms of the Homeownership Equity Protection Act. FHA minimal down payments require mortgage insurance for the life of the loan.

Jeff Lazerson can be reached at jlazerson@mortgagegrader.com

The Orange County Register – News Headlines : Real Estate News