MORTGAGE RATE COMMENTARY

Milwaukee Mortgage Rates GUARANTEED to go UP

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Mortgage Backed Securities providers will start charging Guarantee Fees. These fees are to help off set some of the credit related losses in mortgage pools. The Guarantee Fee will be effective until October 2021.

The new fee will add on average .125% to the RATE. When you buy down a rate the lender usually charges 1 point in order to achieve a .25% reduction in rate. That means a person with a mortgage of $200,000 will end up paying an extra $1000 (a half point) or take a higher rate by .125%. That extra increase to the rate will cost the consumer $250 per year.

The problem is the money is being used to fund a payroll tax credit. This from a Bloomberg article with the link below "lawmakers tapped the government-supported mortgage companies to pay for last month’s extension of a payroll tax cut, according to Bank of America Corp." That means the Government is taxing you if you wish to refinance.

The problem is the money that they are charging may be just enough to kill refinance deals. The other problem also listed in the Bloomberg article is the purchase of Mortgage Backed Securities. “This greatly diminishes the last remaining avenue for revenue growth, and we believe the credit rating agencies will see this as a net negative for their credit,” Axel wrote in his report. “When combined with the issue of limited capital, this significantly increases the possibility of a rating downgrade in the medium term.”

Investors will be less likely to purchase a more risky Mortgage Backed Security. This will reduce the price, drive up the yield and take mortgage rates higher.

These fees will start officially in April but lenders are starting to add them to the rates now. A mortgage originated today may not be pooled and sold until April. If they sell it early they keep the added fee for their bottom lines.

http://www.bloomberg.com/news/2012-01-09/fannie-rating-faces-cut-as-lawmakers-siphon-funds-bofa-says.html