mortgage fees

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Friday, April 7, marked a day for celebration. After four years of Congress hiking Veterans Administration (VA) so-called “Bluewater Navy” mortgage loan fees as an offset to pay for other critical veterans’ benefits, Congress has finally let those excessive VA mortgage loan fees expire.

This good news for homebuyers comes on top of FHA action in late February to cut the annual premium on FHA loans by 30 basis points, from 0.85% to 0.55%, saving most families around $800 starting last March 20. And it follows actions over the last year by FHFA to cut Fannie Mae and Freddie Mac LLPA fees for certain first-time homebuyers.

What does the VA loan fee reduction mean for veterans and active-duty families using their no-down-payment mortgage, an “earned benefit” thanks to their uniformed service to the nation? It means that first-time buyers using VA loans will see guarantee fees fall 15 basis points, from 2.30% to 2.15%, and other buyers will see a 30-basis point improvement, from 3.60% to 3.30%. For these families, savings will range from $600 to $1,200 saved starting this week. 

The expiration of the higher VA mortgage fees was not a sure thing and should not be taken for granted going forward. Last November, the Community Home Lenders of America (CHLA) wrote a Letter to top members of Congress asking Congress to let these fees expire. 

Why was CHLA concerned? Because just one year earlier in November 2021, Congress, in their perpetual hunt for “offsets” to pay for other federal spending, hiked fees on Fannie Mae and Freddie Mac loans by $21 billion over 10 years to help pay for part of the cost of the totally unrelated $1 billion infrastructure bill. And technical budget offset concerns played a big role in delaying FHA’s action in cutting FHA premiums.

Meanwhile, Congress and the president are gearing up for a fight over spending cuts in connection with an increase in the debt limit. Any revenue source that has been used in the past could be a target. But at least for now, veteran homebuyers and homeowners are the clear winners.

Charging fees higher than needed for insurance purposes has prevented some qualified families on the margin from being able to escape rents that have been rising faster than incomes. Given that the VA (and FHA) loan programs serve a higher proportion-of first-time buyers and lower-FICO score buyers than conventional loans, reducing these costs helps redress wealth inequities over time. 

To be clear: these loan fee reductions are not some giveaway to families that ought not buy a home — the reductions redress the issue of artificially high fees keeping qualifying families from buying a home. CHLA supports actuarially-based insurance fees to ensure programs remain solvent and proper insurance pricing that balances both risk and opportunity.   Mortgage loan fees should not be higher than needed to safely run government-backed lending.

So, a thank you to FHA for making FHA mortgage loans more affordable, a thank you to FHFA for making GSE mortgage loans more affordable, and a thank you to Republicans and Democrats in Congress for making VA mortgage loans more affordable.

The year is yet young, but this mortgage news for young families has so far been positive.  CHLA stands ready to work with Washington stakeholders to keep the good news coming.

Rob Zimmer is Director of External Affairs for the Community Home Lenders of America (CHLA).

This column does not necessarily reflect the opinion of HousingWire’s editorial department and its owners.

To contact the author of this story:
Rob Zimmer at [email protected]

To contact the editor responsible for this story:
Sarah Wheeler at [email protected]

Source: housingwire.com

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Washington, DC
CNN
 — 

Fees on mortgages backed by Freddie Mac and Fannie Mae are set to change next month, in a plan designed to make homeownership more affordable for more people. Broadly, the fees will go down for many with lower credit scores and will increase for many with higher credit scores.

But that doesn’t mean people with lower credit scores will pay less than those with higher credit scores. The changes mean that people with higher credit scores will still pay less based on lower risk to the lenders, but having a lower credit score will now come with less of a penalty.

There are many variables that go into the cost of a home loan, including what kind of property you are buying, how much money you’re putting down and how high or low your credit score is.

These variables help lenders — and government-backed Freddie and Fannie, which buy the vast majority of loans from lenders — price loans for risk. After starting with the basic, or par, rate, additional price adjustments are added in order to account for how risky the loan is for lenders to make.

Pricing hits like this are called a loan level price adjustment, or LLPA, and have been around for a while and are occasionally updated. The price adjustments allow Freddie and Fannie to keep from being undercapitalized and over-exposed to risk. Fannie and Freddie, which guarantee roughly half of the country’s mortgages, do not directly issue mortgages to borrowers, but instead buy mortgages from lenders and repackage them for investors.

Changes to existing fee structure

Last year the Federal Housing Finance Agency, which oversees Freddie and Fannie, increased the fees on loans for which there is less reason for government support, including some high balance loans, vacation homes and investment properties.

In October, the FHFA announced it would eliminate upfront fees for certain borrowers and affordable mortgage products, who tend to be borrowers with limited wealth or income, while putting in place increases to other fees, specifically for most cash-out refinance loans.

Then, in January, the FHFA announced additional updates to the fee structure for single-family homes that made permanent the eliminated fees and spelled out how other fees would be increased.

“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,” Sandra L. Thompson, director of FHFA said at the time. “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.”

How the fee change works

For those with lower credit scores, the fee changes will reduce the penalty for having a low score. For those with higher credit scores, more price tiers have been put in place, which in some cases may increases fees.

For example, a buyer who made a 20% down payment with a credit score of 640 would see their fee drop 0.75% from 3% to 2.25% with the updates. Another buyer, also making a 20% down payment, who has a credit score of 740, would see their fee climb by 0.375%, from 0.5% to 0.875%.

The fee will still cost the home buyer with the lower credit score more.

A buyer with a 640 credit score and an 80% loan-to-value ratio will have a fee of 2.25%, while a buyer with a 740 score will have a fee of 0.875%. The difference in assessed fees is about $4,000 more for a buyer with a 640 credit score than for a buyer with a 740 credit score, based on a $300,000 mortgage.

The table outlining the fees based on loan to value ratio and credit score have been posted by Freddie Mac and Fannie Mae.

Some critics say well-qualified buyers are already struggling to enter the housing market.

“Between the lack of supply, interest rates more than doubling in the past year and pricing in most of the country remaining relatively flat, the barrier to entry has never been more difficult to pursue the American Dream,” said Pierre Debbas, managing partner at Romer Debbas, a real estate law firm.

“The intent of providing access to credit to lower-income borrowers with lower credit scores and down payments is an important initiative to help expand the demographic that can acquire a house and theoretically build wealth,” he said. “However, doing so at the expense of other consumers who are already struggling to enter the market is a mistake.”

But that criticism is misplaced, said Jim Parrott, a nonresident fellow at the Urban Institute and owner of Parrott Ryan Advisors, who added that it is “conflating two separate, largely unrelated moves on pricing for the government-sponsored enterprises.​​”

In a blog post, Parrott explains that the increase in fees for vacation homes and high-value loans allows Freddie and Fannie to reduce fees for some other buyers.

He also points out that the suggestion that fees are lower for those who make a smaller down payment misses a critical point. Any loan with less than a 20% down payment must have private mortgage insurance.

“So those who put down less than 20% pose less risk to the GSEs and should pay less in fees to the GSEs,” Parrott wrote.

Source: cnn.com

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The Community Home Lenders of America (CHLA) this week submitted a letter to the Federal Housing Finance Agency (FHFA) in response to a recent request for input (FRI) on GSE single-family pricing framework. Its message? The trade group asked the regulator to “make no further changes for an extended period of time.”

The original RFI published in May was designed to gather public feedback on goals and policy priorities the agency should pursue in its oversight of the pricing framework.

CHLA says that its recommendation comes from the idea that “Enterprise pricing changes can create short term transition risk for lenders as they approach dates where prices change and that frequent pricing changes can pose a  cost and resource burden on lenders, particularly with respect to necessary IT changes,” the letter said.

Because of this, CHLA says it would be “comfortable” if guarantee fees and loan-level pricing adjustments (LLPAs) remained at current levels for a “significant period of time,” which they define as through the end of 2024.

CHLA, which represents smaller lenders, said it continues to be “extremely critical” of a move by Congress at the end of 2021 to renew a 10 basis point increase to mortgage fees that Fannie Mae and Freddie Mac indirectly charge to consumers. The additional revenue generated by these fees was allocated for infrastructure spending.

The organization is critical of the move because “the proceeds of such fee collections [are] being used solely to pay for non-housing federal expenditures under the federal budget process,” the letter said. “This is a much broader concern than just Enterprise loans. CHLA has long been a vocal critic of budget and appropriations actions and rules under which federal agency mortgage loan fees are diverted to pay for non-housing spending.”

Because of that, CHLA is renewing its request to rescind the 10 basis point increase.

After expressing appreciation to FHFA for Preferred Stock Purchase Agreement (PSPA) changes that established guarantee fee parity, CHLA requests that such parity be extended to mortgage insurance pricing, and that a recent 400% increase by FICO for its credit scores should be scaled back to align more consistently with inflation.

“[FHFA] should direct FICO to eliminate the preferential pricing it arbitrarily gave to a select group of 54 lenders,” the letter said. “It is reasonable for FHFA to take such action, since FHFA requires a credit score on all Enterprise loans.”

Proposed LLPA changes to conventional mortgages initially announced in January have been a source of controversy. The mortgage industry itself expressed nervousness at the prospects of the changes, and an uproar eventually led to a sustained front of opposition by lawmakers in the U.S. House of Representatives which introduced a bill designed to block such changes from going into effect.

The changes specific to conventional borrowers with debt-to-income (DTI) levels at or above 40% were ultimately rescinded, but not before House Republican lawmakers took aim in a House Financial Services subcommittee hearing and an additional hearing with FHFA Director Sandra Thompson as a witness.

“I want to be very clear on one key point, and one that bears repeating: under the new pricing framework, borrowers with strong credit profiles are not being penalized to benefit borrowers with weaker credit profiles,” Thompson said during the hearing. “That is simply not true.”

Source: housingwire.com

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(The Center Square) – A group of Republican Senators have introduced the Middle Class Borrower Protection Act, legislation that would overturn a new federal rule that charges higher fees to certain home buyers with good credit and lower fees for buyers with worse credit.

“The average American has a credit score over 716,” said Sen. Mike Braun, R-Ind, who is helping lead the effort. “The Biden administration is making home ownership more difficult for everyday Americans by raising rates for most people with a credit score over 680 to subsidize riskier borrowers.”

The change came via the Federal Housing Finance Agency (FHFA) which changed the Loan Level Pricing Adjustments, essentially modifying the equation for how costs are decided for loan applicants.

The modified LLPA, which has been tweaked before, is a fee assessed after bankers evaluate the risk of lending them money, and the change potentially costs the affected borrowers thousands of dollars.

The rule has sparked major controversy and pushback from critics, who say the financial jargon amounts to a thinly veiled effort to penalize those with good credit to help those with bad credit in the name of equity.

Director Sandra Thompson of FHFA said in an update on the plan that it will “advance their mission of facilitating equitable and sustainable access to homeownership.”​​

“This is unfair to every American who has worked hard and managed their finances responsibly – they shouldn’t have to pay more and be penalized for the choices of others,” Sen. Roger Marshall, R-Kansas, said in a statement.

Adam Russell, a spokesperson for the FHFA, told The Center Square in May that “there is a good deal of misinformation” about the policy in question.

The formula for determining fees is complex and takes into account multiple factors, making it difficult to make broad statements about the motives behind the changes. The FHFA has repeatedly decried the characterization that fee change punishes those with better credit to help those with worse credit.

As The Center Square previously reported, proponents of the fee change argue the fee is often updated and that it is not fair to draw a line between the fee changes for the two groups, namely those with good and bad credit. They also point out that borrowers with worse credit will still pay much more than those with better credit.

Critics, though, point to the FHFA’s appeal to “equitable” loan offerings as evidence of the plan’s intent. That combined with major components of the change is enough to keep the rule embroiled in controversy.

The change in question applies only to certain loans backed by Freddie Mac and Fannie Mae. The Urban Institute has pushed back on Republicans’ claims about the plan, arguing that when accounting for the cost of the mortgage insurance borrowers have to purchase when putting down less than 20%, the alleged subsidization does not hold up.

Republicans compared the effort to President Joe Biden’s recent federal action to forgive hundreds of billions of federal student loan debt, a measure that was overturned by the Supreme Court earlier this year.

“Folks that have worked hard to save up and build good credit shouldn’t be punished for doing so,” said Sen. Rick Scott, R-Fla. “People who are responsible, like those who have paid off their student loans or Americans who’ve worked hard to build good credit, should be seen as role models, not piggy banks for the left.” 

Source: thecentersquare.com

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Last week, the U.S. House of Representatives passed the “Middle Class Borrower Protection Act of 2023,” legislation sponsored by Rep. Warren Davidson (R-Ohio) that was designed to cancel controversial changes to loan-level pricing adjustments (LLPA). The LLPA changes were announced earlier this year by the Federal Housing Finance Agency (FHFA).

The measure — which recently earned the support of the National Association of Mortgage Brokers (NAMB) — passed on a vote of 230-189, with the House Republican conference voting unanimously in its favor. Fourteen Democrats crossed party lines to join Republicans, according to the office of the U.S. House’s clerk.

“The Biden administration wants to use mortgage fees to put their finger on the scale and decide who gets to pay more and who gets to pay less,” House Financial Services Committee Chairman Patrick McHenry (R-N.C.) said in a statement. “This will make housing less affordable, not more, and puts taxpayers at risk by threatening the safety and soundness of our housing finance system.”

Nearly 95% of Americans have credit scores above 680, and the group could face an extra $1.8 billion in new fees over the next two years under the LLPA plan, according to McHenry.

“House Republicans are taking action to protect middle-class borrowers with Rep. Davidson’s bill and I was proud to support it on the House floor,” McHenry said.

“The Biden administration’s mortgage rule is a socialist redistribution of wealth. I’m glad to see my colleagues recognize this issue and pass my legislation to reverse this rule,” Davidson added.

The proposed LLPA changes caused uproar when announced earlier this year. The main issue stemmed from the belief that the changes would punish borrowers with good credit, which FHFA Director Sandra Thompson later characterized as a misconception.

The changes were ultimately rescinded, but not before House Republican lawmakers took aim in a House Financial Services subcommittee hearing and an additional hearing with Thompson as a witness.

“I want to be very clear on one key point, and one that bears repeating: under the new pricing framework, borrowers with strong credit profiles are not being penalized to benefit borrowers with weaker credit profiles,” Thompson said during the hearing. “That is simply not true.”

According to the entry on the U.S. Congress website, the bill has yet to be introduced in the U.S. Senate. It’s unclear if the bill will make it to the floor of that chamber, where the legislative agenda is controlled by a Democratic majority.

Source: housingwire.com

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Topline

A new policy for mortgage borrowers from U.S.-government-backed institutions has inspired mostly right-wing criticism suggesting the changes benefit individuals with lower credit scores at the expense of borrowers with higher credit scores, but proponents suggest that’s an incomplete characterization of the situation.

Key Facts

Beginning Monday, the Federal Housing Finance Agency altered the loan fees charged to Americans with mortgages from Fannie Mae and Freddie Mac, which provide more than half of all mortgages in the U.S.

According to the Urban Institute, out of 81 types of borrowers classified by down payments and credit scores, the FHFA increased the fees of 23 groups—mainly those with excellent credit scores—by as much as 75 basis points and slashed the fees of 45 groups—largely borrowers with fair scores and lower down payments—by as much as 200 basis points.

Criticism of the plan has escalated in recent days: On Monday, 34 high-ranking financial officials across 27 states sent a letter to Biden claiming the “unconscionable policy” would “further depress” the real estate market and “unfairly cost” middle-class Americans “millions upon millions of dollars.”

But some experts disagree: Jim Parrott and Janneke Ratcliffe of the Urban Institute think tank’s Housing Finance Policy Center point out a separate policy forces borrowers with a down payment of less than 20% to buy mortgage insurance—allowing the FHFA to charge them less because their loans are less risky and making it so less-qualified buyers are still ultimately paying higher fees.

The FHFA is “not raising fees on borrowers with good credit to lower them for those with bad credit,” Parrott explains, arguing the agency is instead “raising fees on loans there is little reason to discount so that it can better serve those who need the help.”

FHFA head Sandra Thompson has also addressed the “misunderstanding,” saying much of the hostility focuses on separate recently announced policies, which ended upfront mortgage fees for low- and middle-income first-time home buyers and upped fees for mortgage seekers for second homes.

Chief Critic

Railing against “President Biden’s mortgage socialism rule,” Rep. Barry Loudermilk (R-Ga.) tweeted Tuesday that borrowers with a credit score of 680 and above with mortgages from Fannie Mae and Freddie Mac will “see a spike in your borrowing costs” to fund the mortgages of individuals with worse credit. It’s unclear what Loudermilk, who sits on the House’s financial services committee, is referring to, as less than half of the down-payment-based groupings of borrowers with credit scores 680 and above saw fee hikes beginning Monday.

Big Number

About $3,200. That’s how much more a borrower in the most-affected qualifying group buying a new home at the average U.S. sale price of $516,500 will pay under the new FHFA rules. These borrowers with credit scores between 720 and 759 taking out a mortgage for between 80% and 85% of the home’s value will pay a 75-basis-point higher fee. Despite the changes, however, the fees remain far greater for individuals with lower credit scores. Borrowers with credit scores over 780 now pay a 0.4% fee for loans worth 75% to 80% of the home price, while borrowers with credit scores below 640 pay a 2.8% fee on the same mortgage.

Contra

“It’s not the case that every category of person with good credit will pay more. There’s not that sort of direct relationship here and it does not affect any particular category of borrower across the board,” George Washington University professor Vanessa Perry told Bloomberg last week.

Key Background

The FHFA policy updates come at a particularly tenuous time for the housing market. Hovering near a two-decade high, 30-year mortgage rates were 6.4% as of last week, more than twice as high as they were at the beginning of last year—before the Federal Reserve started hiking interest rates in its attempt to slow inflation.

Further Reading

What You Need to Know About the Biden Administration’s New Mortgage Fees (Bloomberg)

Spinning Federal Mortgage Fees (Wall Street Journal)

Source: forbes.com