Low mortgage rates prove elusive for the average borrower

The record-low mortgage interest rates of late have been little more than a tease for many borrowers with less-than-stellar credit scores. Only borrowers with scores of 740 or higher and who are able to make a down payment of at least 20 percent are able to obtain interest rates in the 5 percent range, under the Freddie Mac and Fannie Mae guidelines currently in place, and those with lower scores are subject to charges on their loans that effectively raise the interest rates. The average credit score on a scale of 501 to 990 is 771, according to Experian, a credit reporting agency. For those with a score falling within the 660 to 680 range, mortgage interest rates can be upped by as much as half a percentage point on a $200,000 loan due to an extra 2.5 percentage point fee on the loan total. Brad German, a spokesperson for Freddie Mac, said this pricing strategy is based on risk, which helps to protect the company against foreclosure losses, though some mortgage brokers argue that a borrower’s credit score isn’t necessarily predictive of default. “If you have 20 percent for a down payment and 10 years of solid employment and savings and a 401(k) but a credit score of 680, it’s not right to penalize you based on that alone,” said Michele Raab-Francis, who heads the Safe Harbor Capital Group in Bellport, N.Y. [NYT]