Fannie Mae and Freddie Mac recently announced a change to a “risk-based” pricing structure for the conventional “conforming” loans to $417,000 that these agencies purchase in the secondary market. Most lenders’ pricing currently reflects this change.
Under the new system, the interest rate and points you will be offered will vary according to the strength of your credit score. If your applicable credit score (typically the middle of the three scores from the national credit data repositories Equifax, Experian, and TransUnion) is above 680, you will still get the best Fannie/Freddie rates. If your score is below 680, you will be quoted higher rates, tiered by the score levels of below 680, below 660, below 640 and below 620.
As one lender’s announcement explained,
“The pricing changes we are making today are entirely driven by FNMA and apply to all originators equally. It’s important to remember that without FNMA, we and the entire industry would be in a much worse position today than we are. Because of their ability to provide liquidity to agency products through all market conditions, our business is booming and our growth continues. It’s important that they remain strong and the steps they are taking through this action and others are critical to ensuring our continued success and the ultimate recovery of our industry. Also keep in mind that because the changes FNMA is requiring are for higher-risk loans, the changes will affect less than 15% of our current agency originations. [italics mine]
For a potential home buyer, the new pricing structure makes it even more critical to steward your credit score with care.
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