Freddie Mac announced this week that it’s expanding its use of risk-based pricing and increasing fees on mortgages with higher risk, and will discontinue purchases of some higher-risk mortgages altogether.

In a bulletin to sellers and servicers Thursday, Freddie Mac said the changes were a response to “continued deterioration of credit quality and declining home values in most areas of the country.”

The bulletin also provides guidance on using home-price data from the Office of Federal Housing Enterprise Oversight (OFHEO) to identify declining markets where higher down payments are required.

Freddie Mac said post-settlement delivery fees charged on all mortgages sold under flow purchase contracts on or after June 1 will include a new delivery fee of 30 basis points for mortgages with loan-to-value ratios greater than 80 percent and credit scores below 740.

After June 1, Freddie Mac will no longer purchase:

  • Mortgages with loan-to-value (LTV) ratios greater than 97 percent, with the exception of FHA/VA mortgages, and Home Possible mortgages in which borrowers have credit scores of 700 or better.

  • “Alt 97” mortgages with “Affordable Seconds.” Affordable Seconds are no longer an acceptable source of borrower funds, the bulletin said.

  • Streamlined purchase for homeowners mortgages.

First-time home buyers applying for a loan through Freddie Mac’s “Home Possible” program will be required to take homeowner education classes, and all Home Possible mortgages with an LTV or total loan-to-value (TLTV) ratio greater than 97 percent must have an indicator score of 700 or better.

Private mortgage insurer PMI Group Inc. has announced that as of March 1, it will also stop insuring “above 97” loans in which borrowers make down payments of less than 3 percent (see Inman News story), and competitor MGIC Investment Corp. is discontinuing coverage of loans with down payments of less than 5 percent in 30 markets where prices are falling (see story).

In another bulletin Wednesday, Freddie Mac announced changes to selling and servicing requirements, including a provision requiring servicers to send “breach letters” to delinquent borrowers no later than 60 days after they get behind in payments, to encourage them to “immediately contact servicers to explore their workout options and avoid foreclosure.”

Freddie Mac officials said they will continue to require that loss mitigation efforts continue after the breach letter is sent and that the timing requirements for referring home mortgages to foreclosure were not changed.

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