Housing experts react to the new LLPA structure changes introduced by the FHFA
The Federal Housing Finance Agency (FHFA) has revised the single-family pricing framework of Fannie Mae and Freddie Mac, introducing a modest increase in overall pricing – sparking criticisms from housing organizations, which have raised concerns about the impact on borrowers and the market.
The new loan level pricing adjustment (LLPA) changes build on upfront fee changes announced in January and October 2022 after a review of GSE’s guarantee pricing in 2021. These updates made permanent reduced or eliminated fees for first-time homebuyers and those with low or moderate incomes, including significant reduced fees for many borrowers with lower credit scores but strong down payments.
In an official statement released by the FHFA, director Sandra Thompson said, “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. 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.”
Starting May 1, FHFA will incorporate new credit fees into Fannie Mae and Freddie Mac’s price grids. The new fee matrices consist of three base grids by loan purpose for purchase, rate-term refinance, and cash-out refinance loans, recalibrated to new credit score and loan-to-value ratio categories, along with associated loan attributes for each.
However, the initial review of the Mortgage Bankers Association showed 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, according to MBA head Bob Broeksmit.
“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 the GSEs’ 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.”
The National Association of Realtors also expressed its concerns. NAR president Kenny Parcell said that while the association supports most of the changes made to LLPAs this past fall, the new modifications raised “fees on some borrowers with good credit scores and moderate down payments, hitting middle-wealth homebuyers. Furthermore, FHFA included new fees for borrowers with higher debt-to-income scores.
“In the wake of a three-percentage point increase in mortgage rates, now is not the time to raise fees on homebuyers. Furthermore, the FHFA needs to address its recent increase in fees on homebuyers in high-cost markets as well as guarantee fees that impact all homebuyers. Homebuyers are hurting, and these changes are overdue.”
Broeksmit also urged the FHFA to be flexible with its May 1, 2023, implementation date “should the industry need more time to integrate these updates and the recalibration of the upfront fee matrix into mortgage pricing.”
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