Changes to Loan Level Price Adjustments mean varying fees
Homebuyers need to be aware of changes to upfront fees for loans backed by Fannie Mae and Freddie Mac that came into effect today, as part of changes in the Loan Level Price Adjustments (LLPAs). The fees vary based on credit scores, down payments, and types of homes.
The entire matrix of fees based on credit score and down payment has been updated, and people with higher credit scores may end up paying more while those with lower credit scores will pay less in some cases.
The penalty for having a lower credit score will be smaller than before May 1. These fees apply to any loan that's guaranteed by either Fannie Mae or Freddie Mac, regardless of the lender.
The Federal Housing Finance Agency made these changes to provide equitable and sustainable access to homeownership and shore up capital at Fannie Mae and Freddie Mac.
Last October, the Housing Finance Agency eliminated fees for conventional loans for about 20% of homebuyers, which helped boost affordability for many Americans.
Groups that benefited from that change include low- to median-income first-time homebuyers; buyers using the HomeReady (Fannie Mae) or Home Possible (Freddie Mac) low-down-payment mortgage options for low-income buyers; buyers using the HFA Advantage (Freddie Mac) or HFA Preferred (Fannie Mae) loans offered through state and local housing finance agencies; and single-family loans that fall under the Duty to Serve program that helps low- and moderate-income families finance manufactured housing and rural housing purchases.
Hakan Wildcat, mortgage area manager in Kansas for Guardian Mortgage, said, “I can see both sides. Are there going to be people who qualify for a loan but maybe shouldn’t? Maybe, but that’s probably a very small percentage. But I can see at the end of the day, money is money and if you have great credit, why should you be penalized? We're going to have to see it in practice and see how it plays out, but overall, the thought process is probably sound and good.”
The Housing Finance Agency plans a fee on August 1 for borrowers with at least a 40% debt-to-income ratio and 60% loan-to-value ratio, calculated by how large your loan is compared with the value of your home.
This fee was also supposed to take effect on May 1 but was delayed after pushback from the industry.
The Mortgage Bankers Association, an industry group, has pointed out that, as a standalone measure, the debt-to-income ratio is not a reliable indicator of a borrower’s ability to repay, as a borrower’s income and expenses can change several times throughout the loan application and underwriting process.
The debt-to-income ratio fee will also likely affect a larger group of potential buyers and impact their purchasing power.
