There’s been a lot of alarm in the real estate investment community lately over a newly enacted Federal Housing Finance Agency rule for Fannie Mae and Freddie Mac loans regarding mortgage fees. 

The gist of the complaint is that homebuyers with good credit will now have to subsidize those with bad credit. Technically, this is true. However, the way it is being framed is quite misleading. The general argument goes something like this: Those with a 620 FICO score will get a 1.75% discount, and those with a 740 FICO score will pay 1%.

Riskier Borrowers Are Still Paying More

The mistake being made by many here is that the percentages given are the changes, not the totals. Well, not quite even that. The 1% fee mentioned is what someone with a 740 FICO score would pay if they are taking out an 80-85% LTV loan. The 1.75% “discount” is not the fee someone with a 620 FICO score would pay, but instead the reduction in that fee from before. And in this case, it is for someone taking out a 95% LTV loan or higher.

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