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Mortgage Fees Rising, Even for Prime Borrowers

Getting a mortgage is getting more expensive, even for borrowers with good credit, thanks to the subprime crisis.

Fannie Mae and Freddie Mac, the two government sponsored entities created to promote homeownership, are slapping new surcharges on loans they either buy for their portfolios or for which they provide guarantees.

The fees have sparked outrage among mortgage brokers and home builders. The new surcharges, which some lenders are charging now even though they don't take effect until March 2008, range from 0.75 percentage point to two whole percentage points on the value of the loan. That raises the cost of a $200,000 mortgage by anywhere from $1,500 to $4,000.

Fannie & Freddie's Charges

Credit Score
Points Charged
< 620 2.0 %
620 - 639 1.75%
640 - 659 1.25%
660 - 679 0.75%

The charges hit the least credit-worthy the hardest. They apply to all borrowers putting down less than 30 percent — which is just about everyone — and with credit scores between 620 and 680. These were previously prime borrowers.

Boulder, Colo., mortgage broker Lou Barnes says neither government sponsored entity has ever imposed such a charge and that this will hurt.

"You can’t cut one foot off with a blanket and sew it on to the other end," Barnes said. "The only way we can offset an upfront fee of a percentage point or two percentage points is to raise the interest rate by a quarter or a half of a percent."

The National Association of Home Builders calls it a tax on homeownership and says it points out Congress' failure to reform the government-sponsored entities.

"This is no time for Fannie Mae's business interests to take precedence over its mission responsibility," said Jerry Howard, chief executive of NAHB.

Fannie and Freddie have been under pressure to shore up their capital base amid the subprime meltdown.

They both announced plans to raise billions of dollars in capital while its regulator continues to insist on a capital ratio that is 30 percent larger than mandated by Congress.

Neither Freddie nor Fannie could be reached for comment.

They key here is that even while interest rates come down, lending standards for many borrowers have tightened. That could mean fees, like Fannie or Freddie put in place, an insistence on more money down, or even a refusal to lend in certain markets.