FHFA plans to reduce price adjustment fees on Fannie and Freddie loans

The Federal Housing Finance Agency is considering lowering risk-based fees on loans guaranteed by Fannie Mae and Freddie Mac which critics say have excluded many qualified and first-time buyers from the conventional mortgage market.

FHFA Acting Director Sandra Thompson said Thursday the agency was weighing changes to loan-level price adjustments adopted in 2008 to help government-sponsored businesses manage risk.

Mortgage lenders, realtors and housing experts have urged the FHFA for years to eliminate the fees that increase the cost of a home loan for many borrowers.

“One of the things we are committed to doing is looking at the prices. We didn’t do a holistic review of Fannie-Freddie’s pricing analysis and everything that includes collateral fees and business loan pricing, ”Thompson said at a virtual conference event. National Council on Housing. “So we’ll take a look. It’s on my to-do list.

Many industry experts say the price adjustments at the loan level were unnecessary when they were first adopted during the financial crisis. Housing experts have long argued that the fees disproportionately prevent creditworthy black and Hispanic consumers from owning property.

“We really want companies to strategize to try to help us move forward on the fair housing issue,” said FHFA director Sandra Thompson.

The loan-level price adjustments were added to the cost of home loans guaranteed by Fannie and Freddie under former FHFA acting director Ed DeMarco. He wanted an additional buffer to account for the risk posed by borrowers with lower down payments. The fee can be up to 3.75% of an upfront charge, but typically translates to around 0.75%, or 75 basis points, added to the borrower’s annual interest rate.

GSEs are required by law to only finance loans for which the borrower has demonstrated repayment capacity. Many experts believe that loan price adjustments conflict with the mandate of GSEs to support underserved communities, as fees reduce the affordability of loans guaranteed by Fannie and Freddie.

But borrowers who are unable to put down a 20% down payment on a home are also required to purchase private mortgage insurance, which means that many borrowers with low credit scores and down payments are priced out of the dollar. conventional market. They usually get home loans from the Federal Housing Administration.

“Fannie and Freddie are double-priced homebuyers because not only do they make them pay for mortgage insurance, but they also pay for those loan-level price adjustments and both essentially provide first-loss coverage.” said Dave Stevens, a former FHA commissioner who is now the CEO of Mountain Lake Consulting.

Thompson, who has been an interim manager since June, also spoke about the FHFA’s plans to close the racial equity gap in homeownership. The agency is demanding that Fannie and Freddie develop three-year plans to identify geographic areas that have already been redlined, and to find quantifiable activities to close the racial equity gap. He wants industry feedback on what should be included in the plans.

“We had this conversation for I can’t remember how many years and it took too long,” Thompson said. “We really want companies to strategize to try to help us move forward on fair housing. “

Thompson, who was most recently Deputy Director of the Housing and Mission Goals Division of the FHFA, has worked at the agency since 2013. Prior to joining the FHFA, she worked for 23 years at the Federal Deposit Insurance Corp. control of risk management. She became interim director after Biden’s ouster the former director of the FHFA, Mark Calabria.

Thompson also discussed the FHFA affordable housing goals, fair loan initiatives and its decision to include rent payments in underwriting decisions. She said the agency received some hindsight when it announced it would be reviewing a potential borrower’s rental payment history.

“People were thinking, ‘Oh no, that opens the credit box,’” she said, describing many other factors that go into the underwriting process.

“We are focused on sustainability and providing loans to people they have the capacity to repay,” Thompson said. “Sometimes loans with riskier characteristics have offsetting factors. People have down payments or they have reservations. We take a holistic view of a borrower’s repayment capacity.

Since Thompson took the helm, the FHFA eliminated unfavorable market charges on most refinanced mortgages, made a deal with the Ministry of Housing and Urban Development aimed at strengthening the application of fair loan rules and suspended some restrictions codified by Trump administration officials in government property of Fannie Mae and Freddie Mac.

Thompson described the importance of taking what she called a holistic view of ESM policies.

“I think it’s really important as we order the corporate umbrella to look at the impact of policies – what is the impact on fair lending, what is the impact on affordability – and d ‘take a holistic view, ”she said.

Eleanor C. William