In January of 2023, the Federal Housing Finance Agency (FHFA), which regulates Fannie Mae and Freddie Mac (the GSEs), directed them to change their loan level pricing adjustments (LLPAs)—upfront fees the GSEs charge individual borrowers based on their credit score, down payment, or other risk factors.
FHFA directed the GSEs to reduce fees on most borrowers with credit scores below 680, but it also will raise fees on borrowers with credit scores above 680 and who make down payments of 10%-25%. The former group tends to be underserved while the latter are middle-wealth home buyers. On the surface, this appears to be cross-subsidization (one group pays for the others’ benefit). However, there is no need for this. The GSEs have an obligation to support a national market of all groups and they are making strong profits. Thus, the GSEs could simply reduce the fees for lower credit borrowers and maintain the others at the same cost—especially given the share decline in affordability over the last year and the GSEs’ function as market utilities.
Furthermore, FHFA imposed a new fee on borrowers with debt-to-income ratios (DTIs) greater than 40% and kept in place fees on borrowers in higher cost markets. NAR also opposes this fee since DTIs can change during the financing process, making it difficult to underwrite the loans. What is more, adding a fee raises the borrower’s DTI, making someone more likely to default. NAR favors the use of compensating factors, where a borrower with a risky factor like low credit score must have a larger down payment or lower DTI.
NAR has publicly opposed the changes and shared its concerns with the FHFA and will continue to work with the Hill and industry partners to seek change.
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