Some buyers forced to pay more fees on mortgage loans

TAMPA — Getting a mortgage could cost more, especially if you live in Florida or have less than stellar credit.

Two of the largest sources of loans have been requiring buyers to pony up larger down payments and tacking on fees. Fees on some loans are going higher – up to 3 percent of a loan.

On a $200,000 mortgage, that’s an additional $6,000. For some, the extra cash could be enough to lock them out of the market at a time when home prices have fallen to an affordable level for many.

On Friday, Fannie Mae, one the largest sources of U.S. mortgages, eased its restrictions on minimum down payments in declining markets like Florida. And Freddie Mac, the other finance giant, has reduced its minimum down payment to 5 percent.

But one of the problems is Freddie Mac requires borrowers in Florida and other areas dubbed “declining markets” to plunk down more money at closing than borrowers in healthier markets simply because the home they’re buying is deemed at risk for losing value.

Another issue: higher fees based on credit score and down payment size. Both Freddie and Fannie Mae are charging fees that could add up to 3 percent of the value of a loan or are increasing interest rates by up to three quarters of a point.

“There’s a section of the market that has been excluded from the housing market,” said Bud Gunter, senior broker at Sharpe Mortgage Florida in Tampa. “We have to tell some people they’ll just have to rent for a while and try again in a year.”

That’s bad news for those hoping more affordable prices will jumpstart a housing market recovery and help move thousands of homes for sale in the Bay area.

Some in the real estate industry say the fee structure and declining market policy could lengthen the market’s turnaround and unfairly penalize first-time home buyers. Large chunks of real estate, such as homes in low-income neighborhoods, could be all together removed from financing eligibility, some say.

The restrictive policies and fees are needed, said Brad German, spokesman for Freddie Mac. “We are dealing in the riskiest credit market in generations,” he said. “We have to offset the additional risk.”

Any actions by Fannie and Freddie can have major implications on the market because of the sheer volume of loans they fund. In the first quarter of 2008, the companies together funded more than 68 percent of all mortgages, according to industry mortgage publication Inside Mortgage Finance. In April, the two had 91 percent of the market share for all loans that are securitized.

More than 80 homeowner and real estate groups sent letters to the heads of both corporations last month asking for the policies to be withdrawn.

Fannie Mae’s Friday announcement that it would ease some of the pressure for declining markets like Florida will allow some buyers in markets with falling home prices to put as little as 3 percent down. Other loans will require 5 percent down. Previously, borrowers in some parts of Florida, California and Nevada were required to put down 5 percent more equity than borrowers elsewhere.

Fannie’s fee structure stands, however.

Fannie Mae spokeswoman Amy Bonitatibussaid the agency is continually “assessing our business practices to respond to market needs.”

Freddie Mac, which still uses a more restrictive policy for mortgages in declining markets, permits lenders to make exceptions if an appraiser can convince them the home is in a stable area.

Even in Tampa Bay, -- where housing prices have fallen 25 percent since they peaked in June 2006 at $239,600 -- there are pockets of strength. It’s not fair to stigmatize a whole metro area, or in Florida’s case, a whole state, said Mary Trupo, public issues director for the National Association of Realtors.

For instance, she said, some new neighborhoods in Florida that had heavy investor activity are seeing high rates of foreclosures. Sales prices in those neighborhoods are falling. But there are other neighborhoods where that didn’t happen, and some of those have more stable home values, she said.

No matter what Fannie and Freddie do, however, borrowers in declining markets may still find it hard to obtain loans with low down payments because they will need to find mortgage insurers to accept them, said Brian Simon, senior vice president at Mount Laurel, New Jersey-based mortgage bank Freedom Mortgage Corp.

Fannie Mae and Freddie Mac are required by law to require borrowers to obtain mortgage insurance when they have less than 20 percent down payments. The two major companies that provide the insurance are MGIC Investment Corp., Radian Group Inc. and PMI Group Inc., which have been tightening policies.

Milwaukee-based MGIC, the largest mortgage insurer, now requires a minimum down payment of 5 percent for borrowers with at least 680 credit scores, and 10 percent for borrowers with scores between 620 and 680, Katie Monfre, a spokeswoman, said. In March, it stopped insuring loans with nothing down, raising its minimum down payment requirement to 3 percent. Monfre declined to comment on Fannie Mae’s changes.

PMI spokesman Nate Purpura declined to comment on the Fannie Mae decision, except to say the company requires 10 percent down payments in declining markets.

Jane Floyd, of Diversified Home Mortgage in Tampa, said stricter lending practices are sending more of her customers to FHA loans, which can be a better fit, as long as the borrower can muster a 3 percent down payment. Floyd said FHA loans are now 65 percent of her work, up from 0.2 percent last year.

No matter what down payment policy Fannie and Freddie implement, Floyd said, it doesn’t help unless lenders accept it. Several lenders she’s worked with are requiring borrowers put down an additional 5 percent so they have 10 percent equity in the home.

Mike Anderson, president of Essential Mortgage in Louisiana, is among those lobbying for Congress to make changes to current lending regulations. He called Fannie’s announcement regarding declining payments, “a small victory,” but said Freddie Mac needs to follow suit and both agencies need to ditch the fees.

Anderson said he understands that lending in today’s market is risky, but he said he believes today’s buyers shouldn’t have to pay for the fallout of the housing boom.

“This creates even more of a declining market,” he said. “Saving money is tough now in this economy. Gas is more expensive. Food is more expensive. And some of these fees are excessive.”

SHANNON BEHNKEN is a staff writer for The Tampa Tribune