The Federal Housing Finance Agency (FHFA) has ordered new loan level pricing adjustments (LLPAs) at the Government Sponsored Enterprises (GSEs) Fannie Mae and Freddie Mac, which mortgage lenders must be in compliance with as of May 1. As a result, many homebuyers with mortgages insured by Fannie and Freddie are now paying higher upfront fees. Importantly, the fees do not apply to Fannie and Freddie’s affordable mortgage programs, HomeReady and Home Possible, which let buyers put as little as 3 percent down, or to non-conventional government-backed loans, including FHA, VA and USDA loans and HUD Section 184 loans
Since 2008, Fannie Mae & Freddie Mac have charged LLPAs to individual borrowers based on their credit score, down payment, and other risk factors. With this latest change, many buyers who put 5% to 25% down and have credit scores above 680 are seeing fee increases, and the same can be expected for those with high-balance adjustable rate loans. Notably, it was just last year the FHFA raised guarantee fees on second homes, conforming jumbo mortgages, and high-balance cash out refinancing loans. Meanwhile, higher-risk borrowers with lower credit scores and large down payments are seeing reduced fees, though they can still expect to pay more than those with good credit. In addition, changes made in 2022 that reduced or eliminated the LLPA fee for first-time buyers and those with low or moderate incomes are now being made permanent.
While reduced fees for entry-level borrowers is welcomed news within the industry, the National Association of Realtors® has urged the FHFA to rescind the higher fees imposed on middle-wealth borrowers, noting that the fee increases exacerbate the 3 percentage point jump in mortgage rates over the past year and are completely unnecessary given the current financial strength of the GSEs. Additionally, NAR is working alongside industry partners to oppose a new fee on borrowers with debt-to-income ratios (DTIs) greater than 40 percent that the FHFA has announced plans to impose beginning August 1. For more background and explanation on the recent change in LLPAs, read more from Inman News.