Relationships in Countrywide 10.30.06 Mortgage Rate Sheet
Maturity and Pricing: Fixed vs. ARM and longer maturity
Fixed 30-year rate (or 30/0) = Base%
As fixed period in ARM period decreases, the rate decreases because the borrower is
taking on more interest rate risk (5/25 or fixed for 5 years and ARM for remaining 25
years = Base – 0.10%; 3/27 = Base - .30%; 2/28 = Base – 0.45%; and 6-month LIBOR
(or 0/30) = Base – 0.70%.
If the maturity of the 30-year fixed rate is increased to 40 years, rate = Base + 0.20%.
Caps on ARMs = 7% for life; for 2/28 = 1.5% per year; 3/27 = 3%, and 5/25 = 1%.
Prepayment options: To make the fixed-rate 30-year mortgage where the borrower can prepay within a certain
period shorter than five years, the rate is increased as the prepay period decreases, e.g.,
3 to <5 year prepay = +0.15%; 2 to <3 year prepay = 0.45%; 1 to <2 year prepay = 0.75%;
and < 1year prepay = 1.100%. In other words, as the prepayment probability by the
borrower increases, the lender charges a higher rate.
1. Interest only mortgage = Base + 0.25% and is restricted to higher grades, >= A-.
2. Loan/Value for lowest credit risk: 60% = 5.575%, 70% = 5.775%, 80% = 5.925%,
90% = 6.425%, 95% = 6.925%
3. As credit risk (credit score and mortgage history) increases rates increase and the
loan/value that lenders will offer decreases to offset part of the additional credit risk.
4. For lowest credit risk and 80% loan/value, full documentation = 5.925% and “stated
documentation” = 6.775% or a difference of 0.85%.
Minimum = $50,000 or 50K
50K to <75K = +0.50%
75K to <100K = +0.20%
100K to <200K = no adjustment
200K to <300K = -0.15%
300K to <500K = -0.35%
500K to <750K = -0.15% (lower relative administrative costs but also non-conforming)
3-4 Units = +0.50%
NOOC (non-occupied by owner)/Second Home = 0.75%
Condo = 0.15% (PMI note: effective 6/1/08 MGIC will not insure any FL condos)
Other Factors Not on Sheet:
Escrow Waiver: risk increases if escrow for property taxes and insurance are waived Rate Lock-in: risk increases as the lock-in period increases. Declining market penalties: increase down payments by 5%, FNMA & FHLMC quit
using on 5/16/08, but private mortgage insurers companies still using
Cash-out refinancing: higher risk
Conversion from ARM to FRM: higher interest rate or fees
Private mortgage insurers (PMI): MGIC would not insure FL condos, or cash-out refinancing or investment properties. PMI Group has banned cash-outs and investment
properties in distressed areas. Genworth Financial will not insure second homes in FL.
AIG United Guaranty will not insure condos in declining markets in U.S. (Source:
Fannie Mae, Freddie Mac end declining-market penalties,” Kenneth R. Harney, Orlando
Sentinel, June 1, 2008, p. H11.)
Other condo restrictions: In March 2009, Fannie Mae said it would no longer guarantee mortgages on condos in buildings where fewer than 70% of the units have been sold, up
from 51%. (FHA uses the 51% limit.) Fannie Mae also won't purchase mortgages in
buildings where 15% of owners are delinquent on condo association dues or where one
owner has more than 10% of units, which the firm sees as signals that a building could
run into financial trouble. Freddie Mac will implement similar policies next month.
Fannie and Freddie have also boosted fees on mortgages for condos. Buyers without a
minimum 25% down payment have to pay closing-cost fees equal to 0.75% of their loan,
regardless of their credit score, under new rules that took effect in April. Fannie has said
it will drop that fee in August for cooperative apartments and detached condos. (Source:
“Changes Urged to Rules on Condo Loans,” Nick Timiraos, Wall Street Journal, June 22,