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mortgage-loan-webRISMEDIA, March 26, 2009-(MCT)-Even with interest rates at historic lows and billions of new government dollars flowing into the financial system, getting a mortgage isn’t as easy and smooth a process as it used to be. The difference between wishing for and actually getting a great deal on a mortgage can be a few dozen points on a credit score, or a few thousand dollars on an appraisal.

Where a credit score above 620 might have qualified a homebuyer for a competitive interest rate a couple of years ago, the magic number today is 740.

“Obviously things are more restrictive than they were three, six or 12 months ago,” said Mike Monaghan, a mortgage adviser for Coldwell Banker Home Loans. “It’s a more thorough process today.”

Some in the business say these changes have returned an appropriate level of scrutiny – some would say sanity – to what had become the Wild West of lending. Others say the restrictions are too much, penalizing good borrowers and tossing common sense to the wind.

“Has the pendulum swung too far? I don’t know. That’s the market reality,” said mortgage banker Brian Wickert, president of Accunet Mortgage in Butler, Wis.

Mortgage rates were already flirting with all-time lows when the Federal Reserve announced that it would pump another $1 trillion into the financial system, buying up $300 billion in long-term government bonds and $750 billion in mortgage-backed securities. This move cut another quarter point off 30-year mortgage rates, dropping them below 5% at some lenders – and low rates are likely to stick around for a while, experts said.

“It’s going to work. Rates are going to come down,” said Anthony Pennington-Cross, an associate professor of finance at Marquette University and a former senior economist at the Federal Reserve Bank of St. Louis and the Office of Federal Housing Enterprise Oversight.

The hiccup, as Pennington-Cross calls it, is that only the best-qualified borrowers will be able to obtain the best rates. But that still leaves some less-qualified buyers the opportunity to get a mortgage at a rate slightly above the all-time lows, lenders said.

Government-owned Fannie Mae and Freddie Mac, which buy mortgages from lenders, are looking more closely at credit scores and appraisals. Both agencies are charging fees – a percentage of the loan amount – for loans that entail more risk; those fees are being passed directly to borrowers. Interest rates on such mortgages also are likely going to be higher than on mortgages going to people with optimum credit scores and big down payments.

It’s no mystery why. During 2008, Fannie Mae lost $58.7 billion while Freddie Mac lost $50 billion.

“Fees are adjusted up and down based on market conditions,” said Brad German, a spokesman for Freddie Mac. “The better the credit, the less likely it is that the loan will end up in a loss.”

But Douglas Lenski, president of Wholesale Mortgage Services of Wisconsin LLC in Milwaukee, contends that Fannie and Freddie have gone too far in charging fees to reduce or eliminate risk. “They’ve over-tightened the screws.” he said.

Anyone with a credit score below 740 could be hit with extra fees. For example, someone with a credit score between 700 and 719 who has a 20% down payment would pay a 0.75% fee – $1,500 on a $200,000 mortgage.

The credit-score equation has changed quickly, Wickert said. “Two years ago, it only mattered if your credit score was above or below 620,” he said. “Eighteen months ago, top tier credit was anything above 660. Then it jumped to 680, 700, and now 740.”

The situation is frustrating for John Scaffidi, owner of Complete Mortgage in Sussex, Minn. “There’s no common sense anymore,” Scaffidi said. “There’s nothing wrong with a 700 credit score. Every loan’s a battle, and everything is changing daily,” he added.

© 2009, Milwaukee Journal Sentinel.
Distributed by McClatchy-Tribune Information Services.