Replies to post #413669 on Fannie Mae-No Politics (FNMA)

[Moeclay]

If they really want to make housing affordable, get rid of PMI, closing costs, and down payments.

Charge a flat 25% interest on the price of the home.

House costs $250,000

With 25% interest, $312,500 financed

$312,500 / 360 months = $868 per month

[contrarian bull]

Instead of FnF covering the cost - why not just have a small fee on each individual mortgage based on loan value at time of origination?

Have you ever heard of companies called Fannie and Freddie?

But in case you never heard of them... This is precisely what F&F do. When you take out a mortgage that they back - you are charged a one-time "up front mortgage insurance premium (UFMIP) which is set as a percentage of the mortgage amount. This goes to F&F as an initial premium to back the loan. Then monthly you pay a premium that varies depending on factors like LTV. Those two fees are a primary source of income for F&F and thus "back" the risk they take on for the mortgage possibly defaulting. Once you have enough equity in the loan you can file to have that monthly premium removed from your loan payments. (Lots of people forget to do this and that is additional profit for F&F)

Since 2008 those fees have been increased quite a bit - approximately twice what they used to be. When loan losses drop back to historic levels this would indicate F&F profits should be 2 to 10 times what they were before 2007.

That is - assuming they are allowed to keep that lucrative business and keep premiums where they are. If their profits are too high - and the feds quit stealing them - there will be a call to reduce those premiums.

[Knuckle Sandwich]

They could consider adding a financed upfront fee similar to VA, FHA & USDA that goes into a pool of insurance. When doing Lender paid PMI that cost is baked into the interest rate and or combination of upfront fees. Benefit is usually a lower monthly payment, negative is you will never cancel PMI like you can when paying it monthly but since most people move every 7 years it's not a bad option. Also the Funding fee is tacked on top of principal so buyers doing 100% financing start out in the hole, and you have to consider adding in costs of selling, realtor fees, seller paid closing costs, and title/escrow fees. Most young buyers can't come out of pocket several percentage points to exit the home until some equity is built up.