As details continue to leak about HARP2, I am concerned about some things I learned this week. Fannie Mae published its “Loan Level Pricing Adjustment” matrix. Before anyone gets too excited- they have not published rates- only an index they will use to price loans. There are adjustments for total loan-to-value, credit score, occupancy status, loan term and subordinate financing. All of those factors WILL BE considered in determining the rate for the new loan. There is a common belief (the public and the media) that those factors would not affect rate- that’s not going to be the case. Fannie Mae will place a cap on the fees it will charge to lenders when they buy the loan- but the matrix allows significant upcharges. In short, lenders at the wholesale level will be able to make a significant spread on these loans. Will they try and make that spread? Will competition for this business keep rates down? I certainly hope so… For this program to help as many as intended, we need rates to be low. If pricing on these loans does not come in the low 4% range, it simply won’t be enough to provide a real benefit.
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