Fannie Mae yesterday releaseda statement (Announcement 08-18) detailing another change in its calculation of upfront guarantee fees and the adverse delivery charge.
Previously, for both the March 1 and June 1, 2008 dates, an added 25 basis points adverse delivery charge was implemented for the GSEs FICO/LTV matrix.
For the new FICO/LTV matrix announced for implementation on Oct. 1,it is notable
that the adverse delivery charge is now 50 basis points.
To simplify the comparison between June 1 and Oct. 1, analysts look at the net effect in accounting for both the FICO/LTV matrix and the adverse delivery charge.
In a report, Barclays Capital analysts looked at why it seems that the biggest rise in upfront fees is being applied to the 75 to 80 LTV bucket and not 80 to 85 or greater than 85 LTV?
Analysts think that the reason is related to the amount of primary mortgage insurance (PMI) coverage that is required for different borrower LTV.
The new matrix presents percentages detailing the coverage amount of the loan and not of the home value.
For instance, for an 80% LTV borrower with a $100 home, 12% PMI covers $9.6 of the loss and Fannie Mae would be responsible for $70.4.
However, if the borrower took out a 90% LTV loan, 30% PMI would cover $27 of the loss and Fannie Mae would be responsible for only $63 of the loss. Barclays analysts saidthis would imply that the agencies are more exposed to borrowers with LTV in the 80% to 85% range than in the greater than 90% range.
They are even more exposed to 75% to 80% LTV borrowers who would be unlikely to have any PMI.