The limited time offer has received little promotion from the Charlotte, N.C.-based bank, which sent emails to select Florida Realtors earlier this week outlining basic details of the plan.

Only homeowners whose short sales are submitted for approval to Bank of America before Nov. 30 will qualify. The homes must have no offers on them already and the closing must occur before Aug. 31, 2012.

A short sale is when a bank agrees to accept a lower sales price on a home than what the borrower owes on the loan.

Realtors said the Bank of America plan, which has a minimum payout amount of $5,000, is a genuine incentive to struggling homeowners who may otherwise fall into Florida’s foreclosure abyss.

The current timeline to foreclosure in Florida is an average of 676 days – nearly two years – according to real estate analysis company RealtyTrac. The national average foreclosure timeline is 318 days.

“I think this is a positive sign that the bank is being creative to try and help homeowners and get things moving,” said Paul Baltrun, who works with real estate and mortgages at the Law Office of Paul A. Krasker in West Palm Beach. “With real estate attorneys handling these cases, you’re talking two, three, four years before there’s going to be a resolution in a foreclosure.”

Guy Cecala, chief executive officer and publisher of Inside Mortgage Finance, called the short sale payout a “bribe.”

“You can call it a relocation fee, but it’s basically a bribe to make sure the borrower leaves the house in good condition and in an orderly fashion,” Cecala said. “It makes good business sense considering you may have to put $20,000 into a foreclosed home to fix it up.”

Homeowners, especially ones who feel cheated by the bank, have been known to steal appliances and other fixtures, or damage the home.

“This might be the banks finally waking up that they can have someone in there with an incentive not to damage the property,” said Realtor Shannon Brink, with Re/Max Prestige Realty in West Palm Beach. “Isn’t it better to have someone taking care of the pool and keeping the air conditioner on?”

A spokesman for Bank of America said the program is being tested in Florida, and if successful, could be expanded to other states.

Wells Fargo and J.P. Morgan Chase have similar short sale programs, sometimes called “cash for keys.”

Wells Fargo spokesman Jason Menke said his company offers up to $20,000 on eligible short sales that are left in “broom swept” condition. Although the program is not advertised, deals are mostly made on homes in states with lengthy foreclosure timelines, he said.

And caveats exist. The Wells Fargo short sale incentive is only good on first lien loans that it owns, which is about 20 percent of its total portfolio.

Bank of America’s plan excludes Ginnie Mae, Federal Housing Administration and VA loans.

Similar to the federal Home Affordable Foreclosure Alternatives program, or HAFA, which offers $3,000 in relocation assistance, the Bank of America program may also waive a homeowner’s deficiency judgment at closing.

A deficiency judgment in a short sale is basically the difference between what the house sells for and what is still owed on the loan.

HAFA, which began in April 2010, has seen limited success with just 15,531 short sales completed nationwide through August.

But Realtors said cash for keys programs can work.

Joe Kendall, a broker associate at Sandals Realty in Fort Myers, said he recently closed on a short sale where the seller got $25,000 from Chase.

“They realize people are struggling and this is another way to get the homes off the books,” he said.

© 2011 The Palm Beach Post (West Palm Beach, Fla.), Kimberly Miller. Distributed by MCT Information Services

Still, the recession officially ended in 2009 and Wells Fargo economist Mark Vitner say the chance of a second recession is relatively low. However, he also thinks the recovery will be anything but robust, calling it “incredibly sluggish.”

For a housing recovery, jobs are key, and the report foresees a total of 40,000 new jobs added by the end of this year and an additional 64,000 in 2012.

Vitner says Florida’s recovery seems to have some legs as it expands beyond the tourism and health areas. The report points to an upswing of jobs, albeit small, in retail and trade, as well as professional and business jobs.

Wells Fargo report predictions

• Foreclosures will continue to impact home prices.

• The number of foreign investors could decline. European money problems have dampened demand from across the Atlantic, while a weaker Canadian dollar has impacted the value to Canadians. The flow of investors from the Americas has also declined.

• People will continue to move to Florida, though at a still-subdued pace: an expected 110,000 in 2011 and predicted 130,000 in 2012.

• The Florida economy will continue to grow. Wells Fargo predicts 2 percent in 2011 and 2.2 percent in 2012.

• Floridians’ personal income will also grow: 4.2 percent in 2011 and 4.3 percent in 2012.

• Home construction, while improving, won’t hit its full stride again – 1.2 million new homes – until 2015.

The full Wells Fargo report is available online.

Source: St. Petersburg Times, Jeff Harrington

With foreclosures taking an average of 21 months to get through the court system in Florida – longer than in almost any other state – the couple could presumably continue forgoing payments and still stay for years in the three-bedroom, waterfront home with pool that they bought a quarter century ago.

“I no longer have any problem not making payments,” said 72-year-old Neil Strawbridge, who had never missed making at least partial payments until last December, when Bank of America rejected his request to permanently lower his monthly payment.

His lawyer, Justin Clark, has advised the couple to try protecting their credit by selling the house before the bank files for foreclosure and seizes it. But Neil Strawbridge, who was diagnosed with Parkinson’s disease in 1995, said he could see himself and his wife simply staying put until the day comes when they are forced to leave.

Florida is among 26 states that require banks to file foreclosures through the court system, a process that takes an average of 728 days to complete, according to Lender Processing Services. In states where foreclosures aren’t routinely handled by the courts, a foreclosure takes an average of 550 days to process, from default notice to repossession, the research firm reported recently.

Pressured by the Florida Bankers Association, state lawmakers are now grappling with the lingering court process.

Legislators are considering proposals that would divert non-contested foreclosures from the courts, allowing banks to handle them in much the same way they repossess cars. If such a measure became law, it would likely affect houses entering foreclosure after June 2012.

State Sen. David Simmons, R-Altamonte Springs, said that, while the foreclosure process needs to be expedited, Florida homeowners shouldn’t lose their day in court – if they want it.

“A non-judicial foreclosure remedy doesn’t solve an immediate problem for us. … We need to focus on courts cleaning out the backlog sooner,” said Simmons, a member of the Senate Judiciary Committee.

The immediate problem, as Simmons said, includes not only the 22,000 Floridians who received a foreclosure-related legal filing in July alone, according to the research company RealtyTrac Inc. It also includes homeowners like the Strawbridges who haven’t received a foreclosure notice but who have been sitting tight without making payments for months and months.

“I’ve talked to some judges who believe foreclosures are not being filed because banks don’t want to pay association fees – they don’t want the property yet because they can’t liquidate it fast enough,” he said. “We don’t want to be too quick to condemn the judicial system. The delays are, in fact, partially due to lenders not wanting to have the property on their real estate rolls.”

Ripping off the bandage

No one tracks the number of homeowners who have stopped paying their mortgages but are able to continue living in their houses without drawing a foreclosure notice from their lender. But one of the main reasons the foreclosure process has slowed in Florida and elsewhere is because banks temporarily stopped adding cases to the court system about a year ago and pulled many others from the system when it became apparent that documents in some cases had been lost or illegally signed.

Banks have also been criticized for agreeing to short-term, trial mortgage modifications for customers, only to later refuse to grant any kind of long-term solution for the strapped homeowners, many of whom are living in houses now worth half what they paid for them just a few years ago.

With foreclosures taking almost a half-year longer in Florida than in states that don’t require a court process, the Sunshine State has fallen behind California in recovering from the nationwide housing slump in part because the West Coast state doesn’t funnel foreclosures through its courtrooms, said Mark Fleming, chief economist for CoreLogic Inc., a California-based analytical company.

“Ripping the Band-Aid off quickly helps house prices stabilize and rebound better than ripping it off slowly,” said Fleming, though he added that a longer foreclosure process might give local markets more time to recover and a better chance of absorbing houses that revert to bank ownership.

Planning next move

In Oviedo’s Twin Rivers community, the grass surrounding the Strawbridges’ home is thick and green. A small sign shows a lawn-treatment company fertilized it. Even though they aren’t making loan payments, the couple still tries to maintain the house.

They started having trouble making their $2,298 mortgage payments, the result of a refinanced loan, when Neil Strawbridge retired two years ago from his job managing a coffee service. Their income further eroded when Marilyn, 61, cut her hours as a nursing aid about a year ago to get her degree as nurse practitioner from Seminole State College. They handled the $1,194 payments that Bank of America agreed to as part of a four-month trial, but the giant lender refused to extend the offer.

The couple like the suburban feel of the Oviedo/Winter Springs area and say that, if and when they lose their home, they will likely move into a smaller, modular house nearby, which will cost them about $40,000 of their cash savings.

Sitting on his pool lanai, Neil Strawbridge said he and his wife grew tired of wrangling with the bank over the loan modification. “We decided we just couldn’t do this anymore,” he said.

Clark, the Strawbridge’s lawyer, says the majority of the clients he sees in the couple’s situation have not made a mortgage payment in 18 months.

“Most people come in after at least a year of trying to deal with the bank,” he said, at which point “they’re either homicidal or suicidal.”

Short selling

Clark said he’s not convinced the foreclosure process would speed up if the Legislature diverts mortgage-default cases from state courts.

And until the state changes the process, he added, homeowners must time their exit strategy so that they save some of the money they would have been putting toward mortgage payments without getting dinged by a foreclosure on their credit report, which can haunt a consumer’s credit history for as much as seven years.

Clark advises such homeowners to try selling their houses as short sales – for less money than the mortgage balance – which ultimately requires their lender’s cooperation. The Strawbridges, for instance, owe about $200,000 on their home and think it could possibly sell now for about $120,000.

The short-sale process in Florida is faster than the foreclosure process, taking about 410 days on average to close from the time a property’s lender files the first foreclosure notice, according to RealtyTrac.

Even at that pace, the Strawbridges could stay in their home without making payments for another year or more. But first they have to get a foreclosure notice.

Copyright © 2011 The Orlando Sentinel, Orlando, Fla., Mary Shanklin; Knight Ridder/Tribune Business News. Distributed by MCT Information Services.

In discovering the short sale fraud scam, CoreLogic analyzed 450,000 nationwide short-sale transactions in the last two years.

Here’s how the scam often works: Borrowers who are underwater or in financial distress are approached, often by an investment group, and persuaded to sell the property in a short sale at a low price. Soon after the bank accepts the lowball offer, the investment group then resells the house to legitimate buyers at a higher price.

Sixty-five percent of short sales resold within six months that net profits of 40 percent or higher were flagged “suspicious,” which means there is a high likelihood that the lender accepted a low offer, according to the CoreLogic study. These transactions often go undetected by banks, too.

Source: “A Short Way to Short-Sale Fraud,” The Real Deal (June 3, 2011)

© Copyright 2011 INFORMATION, INC. Bethesda, MD (301) 215-4688

Law firms now have 450 days (about 15 months), up from 185 (six months), to move a foreclosure from the first referral to an attorney to a foreclosure auction before fines can be levied.

As of the end of 2010, Fannie Mae had $184 billion in unpaid home loan principal in Florida with a seriously delinquent rate of 12 percent.

According to the new deadlines announced Monday, New York City has the longest time frame to complete a foreclosure at 570 days. Florida and New Jersey are tied for the second longest.

Monday’s change is the second time in less than a year that Fannie Mae has adjusted Florida’s foreclosure deadline. It was last increased in August, jumping from 150 days to 185.

“We review them periodically and come up with a timeframe that best reflects the existing conditions in that state,” Fannie Mae spokeswoman Amy Bonitatibus said.

If law firms don’t meet the time frames, they can be fined on a case-by-case basis and depending on the amount remaining on the loan in foreclosure.

Whether the longer deadline will have any impact in Florida remains to be seen. RealtyTrac, a California-based company that monitors foreclosures, estimated last month that the average Florida foreclosure takes 619 days from the initial court filing to bank repossession.

“They can’t get foreclosures done in 185 days and I don’t think they can get them done in 450 right now,” said Boca Raton-based foreclosure defense attorney Ron Kaniuk. “They can tell the bank attorneys whatever they want, but without funding, the courts are going to grind to a slow, pathetic halt.”

Florida lawmakers decided against extending a one-time $6 million fund this year to hire more judges, case managers and clerical assistants to clear the state’s foreclosure backlog.

The additional help allowed the courts to process 16,972 Palm Beach County cases between June 2010 and February of this year, reducing a backlog of 46,438 cases to 29,466. Statewide, the 462,339-case backlog in June 2010 was reduced by 139,615 cases.

Palm Beach County Chief Judge Peter Blanc is working on a new schedule for his judges to manage the foreclosure cases. He had an additional $640,000 to work with from last year’s extra stipend, which runs out at the end of the fiscal year June 30.

“We’ll be able to handle it, but I think it will be a little slower,” Blanc said about the workload.

Palm Beach County is also still sorting through an estimated 9,000 foreclosure cases previously handled by the Plantation-based Law Offices of David J. Stern.

The company collapsed after being fired by Fannie Mae and Freddie Mac in the fall. The two entities cut ties with the firm following the announcement of an investigation by the Florida attorney general’s office and allegations of wrongdoing.

Former Stern employees interviewed by attorney general investigators mentioned the intense pressure to meet lender foreclosure deadlines. One paralegal said screaming matches would erupt between Stern and a top firm employee about the speed at which foreclosures were being processed.

Attorney Gerald Richman, who is representing the Boca Raton-based foreclosure law firm Shapiro & Fishman, said the extended foreclosure deadline may take some of the pressure off processing files quickly.

But he added that a tight timeline “doesn’t justify anyone cutting corners.”

Copyright © 2011 The Palm Beach Post, Fla., Kimberly Miller. Distributed by McClatchy-Tribune Information Services.

Attorneys general in all 50 states are part of a group now negotiating a settlement with the five lenders, which are accused of falsifying and otherwise mishandling loan documents and mortgage modifications. Florida Attorney General Pam Bondi is one of seven members of the group who oppose a key negotiating point: Cut the mortgage principal for qualified homeowners.

For example, a delinquent homeowner who owes Bank of America $200,000 on a house now worth $100,000 could find the mortgage’s principal amount reduced by an as-yet-undetermined amount through the general proposal under discussion – an appealing proposal for the 2 million Floridians with such “underwater” loans.

The federal government for about a year has been pushing banks such as BOA and Wells Fargo to reduce the mortgage principal for qualified borrowers in danger of foreclosure. But nearly all mortgage modifications still involve only interest-rate reductions or extensions of the loans’ terms – for example, converting a 30-year mortgage to a 40-year mortgage.

Bondi and several attorneys general from other states say principal reduction oversteps the mission of the group that is negotiating with the five banks, and she fears it could turn into a free-for-all of underwater homeowners. The Mortgage Foreclosure Multistate Group should stick to addressing the wrongdoings of loan servicers, she said, instead of trying to dictate how lenders modify problem home loans.

Pushing lenders to forgive part of their mortgage holders’ debt could encourage even responsible homeowners to stop making payments on their loans, in the hope they can eventually get their bank to erase part of their mortgage, Bondi wrote in a recent letter to the head of the working group.

“Some homeowners may simply default on their loan and use the States’ agreement to obtain a principal reduction – whether or not they actually made an effort to maintain their mortgage,” wrote Bondi, who serves on the negotiating group’s executive board.

She called it a potential “moral hazard” that “rewards those who simply choose not to pay their mortgage – because they can simply take advantage of lenders’ obligation to honor virtually automatic principal write-downs.”

A spokesman for the head of the Mortgage Foreclosure Multistate Group said no one wants to push the easy button for everyone who is underwater on their mortgage, allowing them to skip out on their obligation. The group instead wants to find a way for families to stay in their homes, if possible, in addition to settling the complaints of fraudulent loan documents, said Geoff Greenwood, spokesman for Iowa Attorney General Tom Miller, who leads the national group.

“I don’t think the intent was ever an across-the-board reduction, but instead it was to find a meaningful structure that would realistically keep some people in their homes who otherwise wouldn’t be able to stay,” he said. “We want to establish this in a way so that people can’t game the system.”

Bondi came to her position on mortgage reductions as the chief legal officer of a state in which 47 percent of all mortgaged homes are worth less than their loan amounts, according to a fourth-quarter report by the analytics company CoreLogic. Only Nevada and Arizona have higher rates.

In the Conway section of southeast Orlando, Dan Dillard’s pool has turned a greenish hue. The button on his doorbell is missing. He has rented rooms to adult students from Korea, Saudi Arabia and Peru to help him cover a mortgage that has been a challenge since his 2008 divorce. Two previous mortgage modifications lengthened the loan term but kept his payments at $1,646 a month to recoup back taxes and other debt. Now he faces foreclosure.

The information manager for Wycliffe Bible Translators says he would like to stay in the shaded home with his two teenage children who still live there. But he figures the only way he could realistically keep his house is if his lender, Orlando Federal Credit Union, shaved $35,000 off his the $250,000 principal he owes. He estimates the home might be worth $170,000.

“It is absolutely better for any financial institution to run the numbers and modify, even if that means cutting the principal,” Dillard said. “At the end of the day, a modification gives them more money than all losses they will encounter through foreclosure.”

Cutting loan principal is the method least-used by lenders to modify mortgages. Lenders prefer to cut interest rates or stretch out the payments instead. Of more than 17,000 mortgages modified in Florida during the fourth quarter of last year, only 4 percent got a new mortgage payment based at least in part on a reduction in the loan’s principal, according to the U.S. Office of Thrift Supervision. About 90 percent had reduced or frozen interest rates, while 60 percent had longer loan terms.

Bondi wants no part of dictating to lenders how they retool their troubled mortgages. She said any such intervention could actually imperil homeowners because they could be at risk of defaulting yet again under the new mortgage terms. She cited concerns that they could end up with more debt, depleted savings and worsened credit scores if they couldn’t pay their modified mortgages.

Principal reductions, however, are viewed by some industry experts as the best tool to repair mortgages in a way that homeowners can then manage.

Securitization research by Deutsche Bank last year showed that mortgage modifications with principal reductions had a redefault rate of about 40 percent after three years, compared with a rate of about 57 percent for mortgages modified with lower interest and longer terms only.

Dillard made the last payment on his Conway home of eight years in November. He said he also finds it hard to justify spending money on a house that he’s likely to lose. The credit union will end up getting back a property that needs repairs and maintenance. By the time it settles the lawyers’ fees and court costs, makes the necessary repairs, pays the property taxes and markets the house, it will lose far more than, say, a $35,000 reduction in principal, Dillard said.

The single dad, who has no other debt, is exploring bankruptcy because he doesn’t want to pay what could be the $80,000 balance on his mortgage after the house sells. He is concerned about his credit but said he and his children will be fine.

“Orlando loses. My neighborhood loses. I don’t lose – I’m a Christian man, and I’m trying to do the right thing,” Dillard said. “At the end of the day, we will be OK.”

Copyright © 2011, The Orlando Sentinel, Fla., Mary Shanklin, Knight Ridder/Tribune Business News. Distributed by McClatchy-Tribune Information Services.

In remarks at the Real Estate Services Forum Thursday during the Realtors® Midyear Legislative Meetings, Schulman told attendees that the mortgage lending sector was targeted by many of the bill’s provisions.

“[Dodd-Frank] came down hard on loan officers and mortgage brokers. Why? Because they were the ones working with the borrowers,” said Schulman, adding that in the future all originators will be qualified, licensed, and registered, as well as issued a unique identifier.

“Anytime there’s a violation committed by a loan officer, it’s going to be reported in a nationwide system,” he said.

The bill also affects the financial sector, particularly in terms of the structure of securities, which are debts or equities that are packaged for investment. To avoid the financial fraud of the previous decade, Dodd-Frank requires financial companies that create securities to hold a minimum 5 percent stake in them – the exception being securities that are composed of qualified residential mortgages (QRM).

Current QRM requirements for borrowers include no option adjustable-rate mortgages (ARMs), no bankruptcy in the past three years, no prior short sale or foreclosure, and points and fees charged by the lender totaling less than 3 percent of the loan’s value. Furthermore, lenders and regulators have recently recommended implementing a higher minimum downpayment.

The increasingly stringent requirements pose a serious challenge to a viable housing market, Schulman noted.

“The eligible loan is shrinking and shrinking, and it’s going to be harder for someone who has any dents or scratches in their credit to get a loan,” he said. “It’s all well and good to get the riff-raff out of the business and get rid of these exotic, fly-by-night financial products, but let’s not throw the baby out with the bath water.

“We just came through a decade of this laissez-faire attitude. The atmosphere was one of easy money. We put millions of Americans in homes who probably should not have been there. Today, Washington is all about risk management. Congress and regulators stepped in and were asked to regulate. So they did what they always do. They overregulated. I think until we earn back the trust of the Congress and the regulators and even the American people, we’re going to continue to be scrutinized like never before.”

Important, real estate-related changes

The Bureau of Consumer Financial Protection – a new behemoth regulatory agency that Jay N. Varon, Schulman’s fellow speaker and a litigation partner with law firm Foley & Lardner LLP, characterized as the “centerpiece” of Dodd-Frank – officially launches on July 21. This organization will encompass a half-dozen current regulatory agencies and 18 consumer statutes, including RESPA. It will also have what Varon called “nuclear” penalties, meaning punishments for violations that are much more stringent.

There will also be new prohibitions on steering and loan-officer compensation. Dodd-Frank changed the compensation model for loan officers to prevent them from steering consumers into loans that may not be right for them, yet profitable for the lending company. According to Schulman, loan officers will collect the same sum per loan, whether it’s a 30-year fixed mortgage or an option ARM. Still, he said this new arrangement isn’t entirely foolproof.

“Businessmen figure out a way to make every system work. Sure, they’ll pay them 50 basis points for loans of all kinds. But they can also pay them bonuses based on total volume,” he explained.

Appraisals and AMCs: New regulations in Dodd-Frank are designed to protect appraiser independence, Schulman said. These rules also sunset the Home Valuation Code of Conduct (HVCC), which caused a great deal of consternation among real estate professionals who say it contributed to the collapse of deals after it was enacted in 2009.

Source: Brian Summerfield, REALTOR Magazine

© 2011 Florida Realtors®

Statistics are hard to come by, but bankruptcy lawyers say the provision has been used effectively on hundreds, if not thousands, of cases in the San Francisco Bay Area during the past two years.

“It’s a big thing in our valley,” said James “Ike” Shulman, a San Jose bankruptcy lawyer. “But it’s not widely known.”

Shulman, co-founder of the National Association of Consumer Bankruptcy Attorneys, said he has helped a number of clients who have filed for personal bankruptcy use the law to hold on to their houses – including three last week.

Cathy Moran, a Mountain View, Calif., bankruptcy lawyer, said one of her clients had a $132,000 second mortgage voided by the court.

“This is a really big-ticket issue that allows people to keep a home and conform the mortgage to something closer to real value,” Moran said.

Bankruptcy laws prevent homeowners from eliminating the debt of a first mortgage if they plan to stay in their home. But second mortgages are treated differently. They can be declared unsecured debt when there is no equity to cover them, as is the case for millions of houses that are now worth far less than a few years ago.

When that happens in a personal bankruptcy proceeding, the second mortgage is put on hold and no payments are required while the homeowner completes a repayment plan for other debts, which typically takes three to five years. At that point, the second mortgage is eliminated.

Many of these second mortgages were granted during the housing bubble, when home prices were going in one direction only – up, up and up.

“A lot of these are loans that shouldn’t have been made at all,” said Henry Sommer, editor of Collier on Bankruptcy, a publication on bankruptcy law.

One of Shulman’s clients, Veronica – who asked that her full name not be used – was struggling to keep the San Jose house she bought in 2005 for $612,000.

Her home’s value has dropped to about $367,000 – less than her first mortgage of $489,000 – which allowed her to petition the bankruptcy court to set aside her $122,000 second mortgage. The court granted her motion.

She successfully completed her payment plan for other debts two months ago, and her second mortgage is now eliminated.

“It’s wonderful,” she said. “After almost six years, I am finally able to see the light at the end of the tunnel, and I’m so, so grateful.”

Mortgage bankers don’t like the practice.

It’s “a troublesome phenomenon. It’s one of those things that’s just now developing and bubbling up,” said Dustin Hobbs, spokesman for the California Mortgage Bankers Association. But there is little the mortgage industry can do, aside from seeking to change the law. That could be difficult given the current partisan lineup in Washington.

And there are no complaints from investors in first mortgages, like the pension and retirement funds represented by the Association of Mortgage Investors. “We think with the right controls, something like this to allow a responsible, distressed homeowner to reorganize their assets, liabilities and cash flows is a very pro-business proposition,” said Chris Katopis, the association’s executive director. “We disagree with what the mortgage bankers associations are saying on this.”

The law has been like this for years, bankruptcy lawyers say. It’s just never been used as much because in the past there was usually enough equity in a home to cover the second mortgage.

“We’re having great results” using the rule, said Brette Evans, a San Jose bankruptcy lawyer. In one recent case, a small-business owner was able to hang on to her home by setting aside a $240,000 second mortgage, she said.

That put the borrower in “a safe zone” where she could work out a modification of her first mortgage, Evans said.

© 2011 San Jose Mercury News (San Jose, Calif.). Distributed by McClatchy-Tribune Information Services.

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For the first time since 2009, Fannie Mae and Freddie Mac are raising risk fees they charge lenders on loans they buy for resale to investors. The mortgage giants are also adding risk fees to more loans extended to people with stellar credit. To avoid a fee or to get a discount, most borrowers will need FICO scores of 740 or better and downpayments of 25 percent or more. Lenders could absorb the cost, but most are expected to add it to loan costs within days, if they haven’t already, says Cameron Findlay, LendingTree economist. The increases affect most loans with longer than 15-year terms sent to Freddie starting March 1 and to Fannie on April 1.

For example, a buyer of a $200,000 house who has a 700 FICO credit score and 20 percent downpayment will pay $1,600 for the Fannie risk fee vs. $1,200 before. If the borrower’s score is 680, the fee will be $2,800. Borrowers can pay fees upfront, or lenders will price them into interest rates.

While not huge, the new fees are notable in that they’re being added to more loans that go to borrowers with higher credit scores.

FICOs generally go from 300 to 850; the median is 711. With few exceptions, risk fees hadn’t applied before to borrowers with FICO scores of 740 or above.

Now, they’ll face the smallest fee, 0.25 percent of the loan amount, if they put down less than 25 percent. “For the first time, these fees apply to virtually everybody,” says Keith Gumbinger of mortgage research firm HSH.com. For single-family home buyers and standard refinances, the fees will hit 88 percent of the borrower categories set by Fannie and Freddie, up from 70 percent, he says.

Freddie and Fannie announced the changes last year. They’re “intended to more accurately reflect changing risks in the housing market,” says Amy Bonitatibus of Fannie Mae. Before the change, loans to borrowers with 740-plus FICO scores paid risk fees on some loans, such as cash-out refinances, says Freddie Mac spokesman Brad German.

Freddie says the increases will have a “nominal effect” on affordability. A 0.25 percent fee would add less than $10 to the monthly payment on a 5 percent, 30-year fixed-rate loan for $200,000, it says.

Yet, higher fees will make it harder for some consumers to qualify, Findlay says. For those that do, the fees aren’t likely to scare them off, given today’s low interest rates, he adds.

© Copyright 2011 USA TODAY, a division of Gannett Co. Inc., Julie Schmit.