State governments push to scrap the new LLPA fee changes.

A coalition of fiscal officers from 27 state governments called on the Biden administration and the Federal Housing Finance Agency (FHFA) to scrap the loan-level pricing adjustment (LLPA) fee changes that went into effect on May 1. In a letter to President Joe Biden and FHFA Director Sandra Thompson, the fiscal officers said the new policy will force homebuyers with good credit to pay more on their mortgage every month. “Those who make down payments of 20% or more on their homes will pay the highest fees – one of the most backward incentives imaginable,” the letter said. The increased fees will subsidize higher-risk borrowers by handing out better mortgage rates to people with lower credit ratings who have saved less for a down payment, according to the letter. In January, the FHFA made a series of significant changes to the LLPA fees charged by Fannie Mae and Freddie Mac on conventional/conforming mortgages, introducing a “revamped” LLPA matrix that differentiates pricing by loan purpose, with grids for purchase loans, limited cash-out refinance loans, cash-out refinance loans and additional LLPAs by loan attribute. The LLPA changes make permanent the reduced or eliminated fees for first-time homebuyers and those with low and moderate incomes. The changes also include significantly reduced fees for borrowers with lower credit scores but strong down payments. The fee changes were expected to hit borrowers with FICO scores between 720-739 and 740-759 the hardest, resulting in these borrowers paying thousands of dollars more in some cases. The most controversial change was the addition of the LLPA tied to a borrower’s debt-to-income ratio, which will charge a fee for borrowers with a DTI at 40% or higher. But following uproar from the industry — including the Mortgage Bankers Association (MBA) — the FHFA has delayed the implementation of the DTI-based LLPAs until August.

While there’s a gap in access to credit, and while low credit scores are a significant barrier to buying a home, the right way to solve the problem is not to penalize hardworking, middle-class American families by “confiscating their money and using it as a handout,” according to the letter. 

Source: HousingWire