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The high cost of interest-only initial payment loans

January 5, 2009 |  7:52 am

Mortgage giant Fannie Mae plans to raise a previous 1.25% fee charged to lenders to 3.25% -- and yes, that is passed on to the consumer -- on some types of mortgages it purchases. Saturday's Wall Street Journal had a short write-up on it.

For instance, for a 30-year fixed-rate mortgage to buy a condominium, allowing for initial payments of interest only and with a 20% down payment, a borrower with a credit score of 690 will pay fees totaling 3.25% of the loan amount for mortgages Fannie purchases after April 1. ...

A Fannie spokesman said the higher fees are targeted at some of the highest-risk loans, such as those allowing deferment of principal payments and those allowing borrowers to draw cash when they refinance.

The National Assn. of Realtors registered its displeasure in a letter to Fannie protesting the "major new costs" on buyers and people seeking to make their loans more affordable through refinancing.

Let's back up the truck here. The 20% down seems very respectable, but why, oh why, are they still offering interest-only "teasers"? What happens when the entire payment kicks in -- particularly if the property has dropped in value since the purchase? I'm not following the logic.

--Lauren Beale

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