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Mortgage fees usually induce yawns and glazed-over eyes. But when word began circulating last month that updated pricing would cost some home buyers more, it resulted in viral TikTok videos with thousands of outraged comments misinterpreting the new rules.
Many critics raised similar questions: Why were some borrowers with lower credit scores and down payments receiving improved pricing on their mortgage rates, while others with high credit scores and larger down payments were being charged more? Are responsible borrowers subsidizing riskier loans?
The changes made the rounds on cable television, even landing a spot on Tucker Carlson’s final show on Fox News, where he claimed that they were going to provide incentives for bad behavior. But much of the controversy focused on the winners and the losers of the pricing updates — and not the fact that the most creditworthy borrowers with large down payments would still pay much less. To clear up any confusion, the federal regulator behind the new pricing had to issue a statement: Sparkling credit still pays.
“You still get a better rate and loan pricing if you make a higher down payment and have better credit,” said Bob Broeksmit, president and chief executive of the Mortgage Bankers Association, an industry trade group.
January, when the regulator that oversees Fannie and Freddie — the Federal Housing Finance Agency, known as the F.H.F.A. — introduced new pricing charts that lay out how fees are applied to different borrowers and loan types. But the change may have resurfaced now because the updated fees became effective for loans delivered to Fannie and Freddie on May 1. Given the time it takes to close new loans and home purchases, the new fee menus had already been incorporated into mortgages for a while.
There’s little borrowers can do to control the market forces that drove up interest rates on mortgages in the past year. They stood at 6.4 percent as of Friday, nearly twice their level at the start of last year. But your financial profile — your credit scores, the size of your down payment — also factors into how much you pay for a loan. That’s where these fees come into play.
The fees have been in place since 2008.
Depending on how borrowers stack up, they will pay a separate fee on a mortgage backed by Fannie Mae and Freddie Mac.
Those fees, which are a percentage of the loan amount, are often layered on top of a borrower’s base mortgage rate; and the higher your credit score, the less you generally pay. In other words, the riskier the loan is deemed to be, the higher the fee.
Freddie Mac, can add $30 to $70 a month for every $100,000 you borrow). That means they pay more, in total, than those with down payments of 20 percent or more.
The insurance protects the lender, not the borrower — that, in turn, reduces some of the risk of borrower default to Fannie or Freddie and shifts it to the private insurer. “So those who put down less than 20 percent pose less risk,” according to a recent paper by Jim Parrott of the Urban Institute, “and should pay less in fees.”
The misinformation fixated on creditworthiness.
Those nuances aren’t easily explained in short clips on social media. Instead, many critics figured that less creditworthy borrowers were getting a break at the expense of those with higher scores.
“Did you ever think in a million years that having good credit would actually punish you if you were buying or refinancing a home?” one outraged TikTok user asked.
“Guess I’ll go drop my credit score by over 100 points before I go buy my 1st home,” a commenter added.
Those sentiments — or some version of them — gained traction on cable television, social media and elsewhere. “We’re hurting the good people,” Mr. Carlson said during his segment.
Sandra Thompson, the director of the F.H.F.A, explained in a statement meant to “set the record straight” on why the agency made the changes, which began with a review of Fannie and Freddie’s pricing and programs in 2021 (it was last updated in 2015). The agency reiterated that it had recalibrated the fees on its most traditional mortgages to better reflect the risks of the loans and to strengthen its finances.
mission. And the F.H.F.A. said it made other changes to help support those goals.
At the beginning of last year, the agency said it would raise fees on loans that weren’t exactly central to that mission: It increased pricing on vacation home loans, larger mortgages (in some high-cost areas, these loans exceed $1 million), as well as on borrowers who refinanced their loans and withdrew cash from their home equity. “It is through those increases that we were able to eliminate fees for certain home buyers that are lower or moderate income,” according to F.H.F.A. officials.
Gary Acosta, a co-founder and the chief executive of the National Association of Hispanic Real Estate Professionals, said he thinks borrowers on the margins were paying an excessive amount in fees in relation to the risk they added to Fannie and Freddie’s mortgage portfolios. But he doesn’t think the price changes are meaningful enough to make a big difference.
“It is not clear that these price adjustments are going to result in more borrowers being able to participate in homeownership,” Mr. Acosta said. These borrowers may still be more likely to find better pricing through the Federal Housing Administration, he said, a government agency that insures mortgages made largely to first-time homeowners, often with small down payments and lower scores than Fannie or Freddie will permit.
Mark Calabria, a former director of the F.H.F.A. and a senior adviser at the Cato Institute, a libertarian think tank, also expects the pricing changes to have minimal effects on the broader housing and mortgage markets.
But there are practical takeaways. People living in higher-cost areas who need larger mortgages to finance their homes, for example, may be better off getting mortgages through providers that hold the loans in their own portfolios instead of selling them to Fannie or Freddie.
“It still pays for you to build your credit and to shop around,” said Mr. Calabria, “even more now.”