Interest Rate and Credit Score

[sam_gordon]

It’s a fee between the lender and Fannie Mae when the lender securitizes a bunch of mortgages into a MBS and sells it to Fannie Mae. How the lender passes on this fee is up to each lender.

I posted last months and the new schedule for May 1st going forward fees. It’s a matrix of LTV and credit score by loan purpose type. You’ll have to run your own numbers to see if you’re potentially impacted and how much.

Well A, I'm not impacted because I already have a mortgage and no plans to sell/buy in the near future.
B, I tried reading the charts and I couldn't understand them.
C, I thought my question was pretty simple. Guess not.
D, MBS?

 

[DLgal]

Well A, I'm not impacted because I already have a mortgage and no plans to sell/buy in the near future.
B, I tried reading the charts and I couldn't understand them.
C, I thought my question was pretty simple. Guess not.
D, MBS?

MBS= Mortgage Backed Securities

The increase applies to the one time FEE, not to an individual's mortgage interest rate. High credit borrowers will still get the lowest interest rates.

 

[RamblingMad]

Well A, I'm not impacted because I already have a mortgage and no plans to sell/buy in the near future.
B, I tried reading the charts and I couldn't understand them.
C, I thought my question was pretty simple. Guess not.
D, MBS?

Mortgage backed security.

What’s challenging?

Find the refi table. Look up your credit score. Grab your current loan amount. Grab your Zillow estimate. Divide the last two to get your estimated LTV.

Then find what the fee was before May 1st and what the fee is after May 1st and subtract. That’s your estimated impact if the lender passes the fee to if you refi.

This is why this reporting is a mess. It’s not simple, but it’s not hard. What the news is doing is grabbing numbers to build an angry narrative to get clicks.

 

[HeatherC]

So, new borrowers with low credit scores will pay slightly lower fees than before (3.25% decreasing to 2.875%) and new borrowers with higher credit scores slightly higher than before (.25% increasing to .375%). Bad credit home buyers are still paying 2.5% more than good credit buyers. And this small shift has people up in arms about socialism?

Note: the numbers I quoted come from the example cited in this article- https://www.fastcompany.com/90887938/mortgage-changes-credit-score-higher-fees-explained-may-biden

“this small shift” is one example of many, many reasons people are not happy. Not this one item.

 

[china mom]

So an extra $500 over the term of the loan to help others? If that's all this is, I really don't see the big deal.

I have always been very frugal with my leave usage, especially my sick leave usage. If I had a doctor's appointment on Tuesday, I would stay over on Monday so that I would not have to take leave on Tuesday. If I felt a little blah, but no outright sick, I would come in to work, only staying home if I was really sick.

When I had my son at age 38, I came back to work at 4 weeks rather than use more sick leave.

One of my subordinates had a different approach. We earned a day of sick leave every month and it seemed like she would take a sick day each month. She would use her vacation leave to take days off here and there. when she got pregnant, we realized that she did not have enough sick leave to cover six weeks maternity. In fact, she had almost no leave in the bank. I calculated how much leave she would be earning over the nine months and offered her the opportunity to work an extra ew hours every week to bank as comp time. She did not take me up on this and continued to use her leave. And, no, before you ask, she had no medical issues, she just didn't like to come to work.

After the baby was born, she requested leave donations from her co-workers. I refused. I do not see why I should have sacrificed throughout my career while she wasted her leave the whole time just for me to give something up and her reap the benefit.

I feel the same way about credit, credit scores, and mortgage fees fees. I lived a frugal life to get where I am while some others (not all) lived above their means. I should not have to pay more so that others can pay less.

 

[sam_gordon]

I have always been very frugal with my leave usage, especially my sick leave usage. If I had a doctor's appointment on Tuesday, I would stay over on Monday so that I would not have to take leave on Tuesday. If I felt a little blah, but no outright sick, I would come in to work, only staying home if I was really sick.

When I had my son at age 38, I came back to work at 4 weeks rather than use more sick leave.

One of my subordinates had a different approach. We earned a day of sick leave every month and it seemed like she would take a sick day each month. She would use her vacation leave to take days off here and there. when she got pregnant, we realized that she did not have enough sick leave to cover six weeks maternity. In fact, she had almost no leave in the bank. I calculated how much leave she would be earning over the nine months and offered her the opportunity to work an extra ew hours every week to bank as comp time. She did not take me up on this and continued to use her leave. And, no, before you ask, she had no medical issues, she just didn't like to come to work.

After the baby was born, she requested leave donations from her co-workers. I refused. I do not see why I should have sacrificed throughout my career while she wasted her leave the whole time just for me to give something up and her reap the benefit.

I feel the same way about credit, credit scores, and mortgage fees fees. I lived a frugal life to get where I am while some others (not all) lived above their means. I should not have to pay more so that others can pay less.

DW started her current job. About 3 months later we found out she was pregnant with our youngest. By the time DD was born, DW didn't have enough leave to last through maternity leave. Since it was a C-section, the recovery was longer. Other employees volunteered to donate some of their leave to DW. And no, DW didn't have an issue with "just didn't like to come to work". She tried to save her leave, but because she had such little time with the company, she didn't have much built up.

That was 17+ years ago. DW now contributes some of her leave to others when they need it. I'm guessing for every "squander everything I get" person, there is at least one "I tried doing the right things, but 'life' conspired against me."

And still, no has answered (or I didn't understand the answer), are we seriously complaining about $500 over the life of a loan? So $16/YEAR? No, you're right... "Let them eat cake!"

 

[Kennywood]

Okay, then where exactly is the proverbial line? Is it $50......$100....$200....? That line will be different for everybody, based upon their financial situation. This is why this is about the principle of the matter. Why should someone who's worked hard to build up a good credit score be penalized at all, regardless of the dollar amount? All this will do is make people purposely tank their credit score to get a better interest rate. Once that happens, what's the point of a credit score, without which lenders are unable to determine a borrower's credit risk?

 

[RamblingMad]

Okay, then where exactly is the proverbial line? Is it $50......$100....$200....? That line will be different for everybody, based upon their financial situation. This is why this is about the principle of the matter. Why should someone who's worked hard to build up a good credit score be penalized at all, regardless of the dollar amount? All this will do is make people purposely tank their credit score to get a better interest rate. Once that happens, what's the point of a credit score, without which lenders are unable to determine a borrower's credit risk?

If you have bad credit, you will still pay a higher rate.

The problem is financial education is terrible in this country. I was trying to explain to someone earlier about 25x expenses, and they didn’t get it.

 

[sam_gordon]

Okay, then where exactly is the proverbial line? Is it $50......$100....$200....? That line will be different for everybody, based upon their financial situation. This is why this is about the principle of the matter. Why should someone who's worked hard to build up a good credit score be penalized at all, regardless of the dollar amount? All this will do is make people purposely tank their credit score to get a better interest rate. Once that happens, what's the point of a credit score, without which lenders are unable to determine a borrower's credit risk?

Read the bolded. THIS DOES NOT CHANGE THE INTEREST RATE.

What this changes is the lending FEE (a one time charge). So someone with a higher credit score will STILL get a lower INTEREST rate than someone with a lower credit score. The INTEREST RATE DOES NOT CHANGE. So, if someone wants to be an idiot, and tank their credit score to save $500 in fees over the life of the loan BUT pay MORE in interest charges, go right ahead.

As far as "where is the line"? My max would probably be somewhere around $3600... that's $10/month * 360 months.

 

[White Cat]

If you have bad credit, you will still pay a higher rate.

The problem is financial education is terrible in this country. I was trying to explain to someone earlier about 25x expenses, and they didn’t get it.

You are correct about that. One proof is people on the Dis thinking that trashing their credit score would be worthwhile

 

[BleuB]

If you have bad credit, you will still pay a higher rate.

The problem is financial education is terrible in this country. I was trying to explain to someone earlier about 25x expenses, and they didn’t get it.

Exactly! I am currently in a CFP programme, however, I realized in my interactions that numerical data is mercurial to a lot of people and incorrect assumptions often made about the effects of any percentage rate. I decided to take a couple of data visualization classes next semester so that I can not only present information in a way that is easy for people to understand but also in a way that teaches them to understand numerical data a bit better. That‘s my hope at least .

 

[Mle8308]

I posted this before, but a low credit score does not mean you are low income, it means you manage your money poorly. There are literally millions of low income people with high credit scores. So this is not going to necessarily help low income families. It could benefit millionaires. So one person paying higher fees does not mean you are helping someone who needs assistance.

 

[GAN]

Okay, then where exactly is the proverbial line? Is it $50......$100....$200....? That line will be different for everybody, based upon their financial situation. This is why this is about the principle of the matter. Why should someone who's worked hard to build up a good credit score be penalized at all, regardless of the dollar amount? All this will do is make people purposely tank their credit score to get a better interest rate. Once that happens, what's the point of a credit score, without which lenders are unable to determine a borrower's credit risk?

Who would purposely tank their credit to save a minimal amount on their mortgage? The fact is, whether we like it or not, with the rates higher and likely to stay this way for a while, the housing market is under pressure. So many people either bought or refinanced that very few people are available to keep it moving forward. In order to help, there is a need to open it up to younger buyers(without established credit) or others(who may have less than spectacular credit) -this creates a risk. A risk to everyone -including those who own property at great rates ...if the market crashes it lowers values and impacts the rest of our economy. I can't say I know a lot about the exact details regarding the fee -but it makes sense to me if it protects my investment. So any new buyers will be "burdened" by this fee -which is a lot better than not having the opportunity to get in the market in the first place. Seems like a strange thing to be worrying over....

 

[sam_gordon]

I posted this before, but a low credit score does not mean you are low income, it means you manage your money poorly. There are literally millions of low income people with high credit scores. So this is not going to necessarily help low income families. It could benefit millionaires. So one person paying a higher interest rate does not mean you are helping someone who needs assistance.

The FEES that this will change has nothing to do with the interest rate.

 

[china mom]

DW started her current job. About 3 months later we found out she was pregnant with our youngest. By the time DD was born, DW didn't have enough leave to last through maternity leave. Since it was a C-section, the recovery was longer. Other employees volunteered to donate some of their leave to DW. And no, DW didn't have an issue with "just didn't like to come to work". She tried to save her leave, but because she had such little time with the company, she didn't have much built up.

That was 17+ years ago. DW now contributes some of her leave to others when they need it. I'm guessing for every "squander everything I get" person, there is at least one "I tried doing the right things, but 'life' conspired against me."

That is an entirely different situation. I have donated leave to co workers in the past and would be willing to do it again as situations arise. In my case, it is not a general leave bank, rather a direct donation to the specific person.

 

[china mom]

And still, no has answered (or I didn't understand the answer), are we seriously complaining about $500 over the life of a loan? So $16/YEAR? No, you're right... "Let them eat cake!"

I can't find a source right now but I have seen numerous sources that indicate that in the worst case scenario, the loan payments would increase by $40 per month. Over a 30 year mortgage, that would be an increase of $14,400. I am not that generous.

But even $16 per year is offensive in that it is still my $16, not someone else's to give away or choose who it is given to.

 

[sam_gordon]

That is an entirely different situation. I have donated leave to co workers in the past and would be willing to do it again as situations arise. In my case, it is not a general leave bank, rather a direct donation to the specific person.

I'd be willing to donate a day (once I build mine back up) to a "general" leave bank. Let management decide who's "worthy" of getting it.

 

[Mackenzie Click-Mickelson]

a low credit score does not mean you are low income, it means you manage your money poorly.

It can be other things too such as a parent who exploits a child taking over their SSN (had an old coworker who was dealing with that wrecked her CC so badly and she wasn't even an adult when it happened), or where the partner's choices affected yours and not everyone is aware either, a divorce can make you more vulnerable financially speaking and bankruptcy is another reason and medical debt is such a big portion of bankruptcy discharges.

 

[china mom]

I posted this before, but a low credit score does not mean you are low income, it means you manage your money poorly. There are literally millions of low income people with high credit scores. So this is not going to necessarily help low income families. It could benefit millionaires. So one person paying a higher interest rate does not mean you are helping someone who needs assistance.

Exactly. My 20 year old son made about $15K last year and his credit score is over 800 - thanks to me adding him as an authorized user on my credit card.

 

[mom2rtk]

Who would purposely tank their credit to save a minimal amount on their mortgage? The fact is, whether we like it or not, with the rates higher and likely to stay this way for a while, the housing market is under pressure. So many people either bought or refinanced that very few people are available to keep it moving forward. In order to help, there is a need to open it up to younger buyers(without established credit) or others(who may have less than spectacular credit) -this creates a risk. A risk to everyone -including those who own property at great rates ...if the market crashes it lowers values and impacts the rest of our economy. I can't say I know a lot about the exact details regarding the fee -but it makes sense to me if it protects my investment. So any new buyers will be "burdened" by this fee -which is a lot better than not having the opportunity to get in the market in the first place. Seems like a strange thing to be worrying over....

And any person who can’t enter the market without the fee reduction probably shouldn’t be in the market.

2008 showed us what can happen when you push mortgages for people who can’t afford them.

Never mind the principle involved and the message a policy like this sends.