Starting from May 1, 2023, the Federal Housing Finance Agency will enforce new fee
adjustments for federally-backed home mortgage companies, Fannie Mae and Freddie
Mac. The Loan-Level Price Adjustments (LLPAs) will affect all private banks and
mortgage companies across the US. The new rule aims to subsidize high-risk borrowers
by imposing intentional disruption to traditional risk-based pricing. This policy, however,
comes with added costs for homebuyers with credit scores of 680 or higher. These
homebuyers may pay approximately $40 more per month on a $400,000 loan. Those
who make down payments between 15% to 20% will face the most significant fees.
This new rule will be confusing for borrowers and issues for lenders and individual loan
officers. The added uncertainty may cause delays during an already competitive real
estate market lacking inventory. The National Association of Realtors and some industry
specialists are also concerned that this policy will discourage homeowners with
relatively strong financial positions and good credit scores from refinancing.
The Federal Housing Finance Agency Director, Sandra Thompson, stated that the
changes aim to increase pricing support for purchase borrowers limited by income or
wealth. Despite backlash, the agency postponed upfront fees for debt-to-income ratios
of 40% or more from May 1 to August 1, to ensure a level playing field for all lenders to
have sufficient time to deploy the fee.
While this policy intends to improve access to credit for minority home buyers who often
have lower down payments and lower credit scores, it has generated a lot of criticism in
the industry. The housing market has already been hit hard by a series of Federal
Reserve interest rate hikes that have driven mortgage rates above 6%, roughly double
the level from early 2022. The policy may cause delays and frustrations for homebuyers
and lenders during an already competitive real estate market with low inventory.