There were a number of significant changes made this week in the loan level pricing adjustment (LLPA) fees charged by Fannie Mae and Freddie Mac on conventional and conforming mortgages by the Federal Housing Finance Agency.
Mortgage and real estate trade groups are concerned about the tweaks, which will harm qualified borrowers at a time when there is a housing affordability crisis.
A number of the changes were initially announced in 2022, including pricing updates on second homes, cash-out refinances, and high-balance loans. Also, one of the agency’s new products is a “revamped” LLPA matrix which differentiates pricing based on the loan purpose. It has grids for purchase loans, limited cash-out refinanced loans, cash-out refinanced loans, and additional LLPAs based on loan attributes. New pricing adjustments are now applied to borrowers with debt-to-income ratios above 40%, based on their debt-to-income ratio.
Changes will take effect on May 1, 2023.
According to FHFA Director Sandra Thompson, the changes will contribute to improving Fannie Mae and Freddie Mac’s capital position over time, thus, strengthening their “safety and soundness.”
In the latest LLPA amendments, first-time homebuyers and low- and moderate-income households will be able to pay reduced or eliminated fees permanently. Furthermore, borrowers with low credit scores but high down payments will receive significantly reduced fees.
It’s not all winners, though. According to the new pricing matrix, LLPA fees are increasing significantly for most “cash-out” loans.
There will also be higher fees for middle-class borrowers. At the highest tiers, new bands of borrowers are created by the FHFA. Higher LLPA fees will be imposed on borrowers with between 720-739 and 740-759 FICO scores.
Similar sentiments were expressed by the Mortgage Bankers Association, which noted that the new framework appears to raise overall home prices.
According to the MBA, there should be a delay in implementation so that lenders can adjust their pricing to take into account the updates and the upfront fee matrix recalibration.