Targeted Pricing Changes Could Be ‘Marginal’

It “will be marginal,” Stevens said, describing the policy’s impact on the group it’s supposed to help, which includes first-time homebuyers, low-income mortgage borrowers and those from underserved communities, especially minorities.

“We have just too many other impediments,” Stevens said, describing the current housing market. “The rise in interest rates alone priced out so many potential homebuyers.”

Despite his assessment, he said the announcement by FHFA Director Sandra Thompson, made in Nashville, Tenn., at a recent Mortgage Bankers Association meeting, mirrors her views about minority homeownership.

“It really reflects Director Thompson’s mission that she has vocally promoted since she took (her current) role,” he said. “She has been very public about wanting to expand home ownership opportunities, particularly for African Americans and Latinos.”

“I think (the policy change) is a good thing because ultimately those fees get passed along to the consumer and it determines how much (of a mortgage) someone is able to qualify for because it affects their mortgage payment,” said mortgage broker Shawn Williams, president of College Park, Md.-based Fortis Mortgage. “I haven’t put my finger on how much of an impact it will have given interest rates, but it is going to make houses more affordable for minorities and low-income borrowers seeking to buy.”

“FHFA is eliminating upfront fees for certain first-time homebuyers, low-income borrowers, and underserved communities to promote sustainable and equitable access to affordable housing,” Thompson said at the MBA event. “[This] announcement will result in savings for approximately 1 in 5 borrowers for the Enterprises’ recent mortgage acquisitions.”

STAGNANT RATES

Thompson said the FHFA will work with Fannie Mae and Freddie Mac, the two GSEs it oversees, on when the new fee reductions will go into effect.

Stevens also said that what made Thompson’s announcement unique was she was “acting without pressure from the White House, which has also been very vocal on wanting to” expand minority homeownership.

Across ethnicities, Stevens said, homeownership rates haven’t changed that much.

Information from the National Association of Realtors seems to confirm that, showing that while the homeownership rate for Blacks increased in 2020 to 43.3%, it’s lower than it was 10 years ago. In the same time frame, the homeownership rate among whites, Asian Americans and Hispanic Americans increased to 72.1%, 61.7% and 51.1% respectively.

Overall, the homeownership rate among all Americans is 65.5%.

In its announcement, the FHFA said it’s doing away with upfront fees for the following:

• First-time homebuyers at or below 100% of area median income (AMI) in most of the United States and below 120% of AMI (Area Median Income) in high-cost areas.

• HomeReady and Home Possible loans (Fannie Mae and Freddie Mac’s flagship affordable mortgage programs).

• As well as fees on the Enterprises’ HFA Advantage and HFA Preferred loans; and

• Single-family loans supporting the Duty to Serve program.

The FHFA says its new fees for cash-out refinance loans will begin on Feb. 1, 2023.

In making the policy change, the FHFA said, “the pricing changes build upon the upfront fee increases for second home loans and high balance loans announced earlier this year. The FHFA will continue to review and update the pricing framework to meet the objectives set in the 2022 Scorecard to support core mission borrowers, while fostering capital accumulation, achieving commercially viable returns, and ensuring a level playing field for all sellers.”

KEY ADVANTAGES

Stevens says one of the key advantages to the new policy is that it will eliminate the GSEs’ loan level price adjusters, or LPAs.

“They’re risked-based pricing fees based on a borrower’s credit score,” he said, suggesting that by reviewing Fannie Mae’s LLPA grid it’s possible to find out “how expensive it can get to get a mortgage.”

“If you’re only putting 5% down,” Stevens continued, “there’s an additional 3.5% fee attached to the mortgage.”

As a result, he says, mortgages from the Federal Housing Authority (FHA) often have “a lower rate for low down payment borrowers because they don’t have these risk-based pricing fees. You pay the same fee whether you have an 850 FICO score and you’re putting down 50% or if you have a 620 FICO score and only putting down 3%.”

Part of the problem that first-time homebuyers suffer from has to do with the fact that they’re first-time homebuyers, Stevens said.

“Most first-time homebuyers have lower credit scores,” he said. “They’re less experienced with credit. They’re younger and, so, they haven’t had the time to establish a strong credit history like older generations and, so, the combination of lower credit scores and low down payments make the GSE loans very expensive.”