Newsletter - May 2023
Back in May of 2022, President Biden announced a series of initiatives to ease the burden of housing costs for Americans both renting and buying. One aspect of the Housing Supply Action Plan was to “deploy new financing mechanisms to build and preserve more housing where financing gaps currently exist,” the White House recorded.
Then in February this year, the White House made a move to reduce annual mortgage insurance premiums for new borrowers in an effort to close the intergenerational wealth gap and make homeownership more affordable for first-time buyers.
One aspect of these changes is increasing fees for those with high credit scores and lowering fees for those with lower credit scores. Starting May 1, a new rule from the Federal Housing Finance Agency will adjust the fee structure on all conventional mortgages backed by Fannie Mae or Freddie Mac with the exception of government-backed loans like FHA mortgages.
You can see the full new Loan-Level Price Adjustment (LLPA) tables on Fannie Mae's website. The old tables, which will no longer be used after May 1, can be seen here.
For example, a borrower with a credit score of 780 or higher who puts down 3% will pay a fee equal to 0.125% of their loan amount. Prior to these fee changes, that same borrower would have been charged a fee equal to .75% of the loan amount. On a $300,000 loan, that’s the difference between a $375 fee and a $2,250 fee.
Yahoo News reported that a person with a FICO score of 740 or above with 15-20% down will see an increase of 75% in fees while those with lower credit scores and smaller down payments get a one and three-quarter fee discount on a 30-year mortgage.
This will result in doubling fees for some while decreasing fees substantially for others regardless of income.
Even though this means buyers with higher credit scores will be paying more in closing costs than before, it’s still better than having a lower score.
"Someone with a lower credit score is paying more to get the same rate as someone with a good credit score still," Mortgage Broker Danny Kovack told CBS news. "It just used to be they were paying a lot more. They've made it closer to those with good credit. The better credit score, you're getting a way better deal. They just made it just a tad bit worse for you."
Regardless of this policy change, buyers should still pay their bills on time and work on achieving good credit. A lower credit score must be offset by more cash or higher income.
Americans also have to anticipate another fee change coming August 1. The new change would add an upfront fee for some borrowers with a debt-to-income (DTI) ratio above 40%.
This could create additional challenges for lenders because DTI can fluctuate during the mortgage approval process and extend the closing process. Mortgage industry leaders pushed back against this change earlier in the year and were able to postpone implementation till this summer. However, the Mortgage Bankers Association (MBA) is still opposed to it and wants the policy removed Business Insider reported.
The former CEO of the Mortgage Bankers Association, David Stevens, said these new policies essentially subsidize those with risky credit.
“It’s a bad policy step,” he said. “It lacks integrity, um, and that’s not how we should be making housing policy right now... It should not include tinkering by a regulator for their own, you know, social or political purposes at a time like this.” (Yahoo News)
Although some thought leaders and experts in the real estate industry feel the new fee structure is unfair, the Biden Administration feels this is all an effort to help first-time homebuyers and make housing more accessible for everyone.
The White House included in their press release, “The administration and HUD have taken a range of steps to make homeownership a reality for more Americans.”
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