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A move by Fannie Mae and Freddie Mac’s federal regulator to eliminate upfront fees for first-time homebuyers of limited means is all well and good, but raising fees on middle-class buyers is not the way to do it, the National Association of Realtors (NAR) maintains.
Following up on pricing changes announced last year, the Federal Housing Finance Agency (FHFA) on Thursday announced new pricing matrices for calculating upfront fees, known as loan level price adjustments (LLPAs), for mortgages slated to be sold to Fannie and Freddie.
The updated fees, which take effect May 1, also received mixed reviews from the Mortgage Bankers Association, which urged FHFA to give lenders more time to integrate the updated matrices into their pricing.
The upfront fees that Fannie and Freddie charge lenders can add thousands of dollars in costs for homebuyers — particularly those with blemished credit making smaller down payments.
With rising home prices pushing Fannie and Freddie’s conforming loan limit past the $1 million threshold in many high-cost markets, FHFA has been using LLPAs as a tool to help more low-income Americans become homebuyers and to help lenders address racial homeownership gaps.
Last spring, FHFA ordered Fannie and Freddie to raise fees on second homes and “conforming jumbo” loans above the baseline conforming loan limit (currently $726,200). In October FHFA announced that it would require Fannie and Freddie to eliminate upfront fees for first-time homebuyers, low-income borrowers and underserved communities “to promote sustainable and equitable access to affordable housing.”
Those policy changes have been integrated into the new pricing matrices, which have been recalibrated to new credit score and loan-to-value ratio categories and differentiate between purchase loans, rate-and-term refinancing and cash-out refinancing.
“These changes to upfront fees will strengthen the safety and soundness of the Enterprises by enhancing their ability to improve their capital position over time,” FHFA Director Sandra Thompson said in a statement. “By locking in the upfront fee eliminations announced last October, FHFA is taking another step to ensure that the Enterprises advance their mission of facilitating equitable and sustainable access to homeownership.”
While NAR said it can get behind most of the changes announced last fall, some “middle-wealth” homebuyers with good credit scores seeking to buy houses with “moderate” down payments will pay higher fees, as will borrowers with higher debt-to-income scores.
Under the pricing matrix currently in effect today, for example, a borrower with a 710 credit score buying a home with 15 percent down would be assessed a 1 percent upfront fee. Under the pricing matrix taking effect May 1, the upfront fee for the same credit score and LTV will be 1.5 percent. For a borrower taking out a $315,000 loan to buy the median-priced home, that’s an upfront fee of $4,725 compared to $3,150 today.
“In the wake of a three-percentage point increase in mortgage rates, now is not the time to raise fees on homebuyers,” NAR President Kenny Parcell said in a statement.
NAR also objects to the fee increases on homebuyers in high-cost markets taking out jumbo conforming loans, and says Fannie and Freddie have yet to implement guarantee fee reductions mandated by the the 2017 Tax Cuts and Jobs Act
“Homebuyers are hurting and these changes are overdue,” Parcell said. “Now is the time.”
MBA President Bob Broeksmit said the “extensive reworking” of the pricing matrices will take time to assess, in terms of the full impact on borrowers and the market.
“Our initial review indicates that the new framework results in a modest net increase in overall pricing, which is a concern given ongoing affordability challenges and the higher interest rate environment,” Broeksmit said in a statement.
“With the peak homebuying season coinciding with these changes, FHFA should consider additional program changes to improve affordability, including raising the area median income threshold for [Fannie and Freddie’s] low down payment products,” Broeksmit said. “This move would expand eligibility for borrowers who can meet the monthly obligation of a mortgage payment but do not have significant savings to make a large down payment.”
Broeskmit urged FHFA to be flexible in implementing the new pricing grids should some lenders have difficulty integrating them by May 1.
A trade group representing mortgage insurers was more welcoming of the new upfront fee structure, saying it will result in savings and cost reductions for many borrowers who are required by Fannie and Freddie to take out private mortgage insurance because they are making down payments of less than 20 percent.
The trade group, U.S. Mortgage Insurers (USMI), said in a statement that it “appreciates FHFA’s thoughtful approach to strategically reduce the redundant costs to borrowers of loan level price adjustments,” applauding the agency for “taking a measured and prudent approach to identifying areas where upfront costs could be adjusted, and for many reduced, while maintaining a commitment to strong risk management.”