PARAMOUNT MORTGAGE - LENDER'S BLOG

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by Ruth E. Battle
Paramount Mortgage Senior Vice President

In a highly unpublicized move, Fannie Mae published a new loan level pricing adjustment matrix. In layman’s terms, how does that affect consumers who are obtaining a mortgage?  There are three potential ways this move increases the cost of homeownership.

First of all, Fannie Mae is now charging an “Adverse Market Delivery Charge.” No folks, I didn’t make that name up. It is really what it is being called.  Basically, Fannie Mae will be charging and extra .25% fee on any loan delivered to them after March 1.  The bottom line is that lenders who deliver loans to Fannie Mae (which is practically all lenders in either a direct or indirect fashion) will pass this fee equal to one quarter percent of the loan amount to the consumer.  The fee will either be charged as such, or result in a higher interest rate to the customer so the lender can absorb this new charge.

This charge is a “tax” on any new loan. The money will help Fannie Mae “manage their credit risk,” per an announcement dated December 5, 2007.  While liquidity and credit standards have been under high amount of scrutiny these past several months, the entire market now has to pay for the risks taken by Fannie Mae in the past few years.  There is no expiration on this fee at this point.

The second way the new pricing adjustments will affect consumers is the adjustments tiered with credit scores.  If consumers have a middle credit score of under 680, it may result in additional adjustments – up to a 2% fee- based on the other terms of the loan. Again, this will be charged as a pass through fee or could be quoted as part of a higher interest rate.

The amount of down payment is also part of this equation. If consumers have less than a 30% down payment, the credit score pricing hit comes into play. ARM loans, terms greater than 30 years, cash out refinances and investment property transactions are also potentially affected.

The third area of adjustments is for those transactions with subordinate financing, i.e. a second mortgage. For many consumers over the past five years, a first and second mortgage was a hot product. It allowed customers to avoid mortgage insurance while accommodating low down payments. Now, it may not be so easy to refinance these types of transactions with the additional pricing adjustments and stagnant home values.

With these many changing rules and conditions, it is important for consumers to be  savvy about shopping for a home loan.  Lenders may express these fees differently, so shopping purely on interest rate may not give an accurate cost of financing.  I would recommend consumers request a good faith estimate and truth in lending disclosure to compare loans.  Consumers can refer to the A.P.R. (annual percentage rate) on the truth-in-lending disclosure.  The APR expresses the cost of credit in one number, taking into account rates and fees.  The lower APR expresses the best deal. Consumers can also note that FHA, VA and loans exceeding $417,000 are not affected by these fees.

by Kay Bell, Bankrate.com

Owning a home tops the dream list for most Americans, and for plenty of good reasons. It's a shelter for your family, a gathering place for your friends and a good long-term investment.

Tax breaks are also frequently cited as motivation for moving from renting to owning, and there are many ways a home can cut your tax bill.

But, as is often the case with the U.S. tax code, homeownership tax benefits are not always clear-cut. That frequently leads to some bad information floating around.

While myths, half-truths and misconceptions may abound, we've narrowed it down to five that, if you buy into them, could cost you.

Half-truths, misconceptions and just plain hogwash

1. Mortgage interest will reduce my tax bill.
2. All costs related to my home are deductible.
3. I must use home profits to buy a new home.
4. Putting my children on the deed is tax-smart.
5. If I take a loss on a sale, I can write it off.

Read the full story here>

There's nothing quite like purchasing your first home. You're on your own. You have a substantial financial investment.

And you now have some different tax considerations.

You're probably well-aware that homeownership affords you several new ways to save on the annual Internal Revenue Service bill.

"Homeownership is one of the best tax benefits that the federal government gives out," says attorney Robin Gronsky, principal of Gronsky Law Offices in Ridgewood, N.J. "People count on it. It's how they calculate their out-of-pocket costs in owning versus renting."

What you're probably less sure of is exactly how to go about taking advantage of all your new house-related tax breaks.

Many first-time homeowners will definitely enter new tax-filing territory with the very first return they file after moving into their new abode. For other new owners, the filing changes might take a little longer to show up.

But all will need to know some basic tax rules that could make their homes a great tax -- as well as an actual -- shelter.

You survived the house search and the bidding process. Getting the mortgage on your new home was a piece of cake. But now you've got to file your tax return for the first time since you moved into your first home. Relax.

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