Posted on 04/21/2023 2:38:38 PM PDT by nickcarraway
Mortgage borrowers with good credit may face higher costs under a new scheme from federal mortgage associations Fannie Mae and Freddie Mac. The firms have released a new Loan–Level Price Adjustment (LLPA) Matrix for loans sold to them after May 1, 2023. Under the new matrix, borrowers with high credit scores will face higher mortgage fees than before and those with lower credit scores will face lower fees.
"It's unprecedented," David Stevens, a former federal housing commissioner and former CEO of the Mortgage Bankers Association, told the New York Post. "My email is full from mortgage companies and CEOs [telling] me how unbelievably shocked they are by this move."
The fee increase is unlikely to lead to significantly higher monthly mortgage payments for most borrowers. For instance, someone with a $400,000 loan and a 6 percent mortgage rate may wind up paying about $40 more per month, according to Stevens' calculations.
But an extra $40 per month means an extra $480 per year. And over the whole course of mortgage repayment, a homeowner could wind up paying thousands of dollars more due to the fee shift.
Regardless of what the shift means in terms of actual costs, it seems unfair that borrowers with extremely good credit are effectively being penalized while borrowers with lower credit scores are being rewarded.
"This was a blatant and significant cut of fees for their highest-risk borrowers and a clear increase in much better credit quality buyers – which just clarified to the world that this move was a pretty significant cross-subsidy pricing change," Stevens said.
"Overall, lower-credit buyers will still pay more in LLPA fees than high-credit buyers – but the latest changes will close the gap," notes the Post:
Under the new rules, high-credit buyers with scores ranging from 680 to above 780 will see a spike in their mortgage costs – with applicants who place 15% to 20% down payment experiencing the biggest increase in fees….
LLPAs are upfront fees based on factors such as a borrower's credit score and the size of their down payment. The fees are typically converted into percentage points that alter the buyer's mortgage rate.
Under the revised LLPA pricing structure, a home buyer with a 740 FICO credit score and a 15% to 20% down payment will face a 1% surcharge – an increase of 0.750% compared to the old fee of just 0.250%….
Meanwhile, buyers with credit scores of 679 or lower will have their fees slashed, resulting in more favorable mortgage rates. For example, a buyer with a 620 FICO credit score with a down payment of 5% or less gets a 1.75% fee discount – a decrease from the old fee rate of 3.50% for that bracket.
Mortgage News Daily explained it this way in January when the changes were announced:
The effective penalty for having a credit score under 680 is now smaller than it was. It still costs more to have a lower score. For instance, if you have a score of 659 and are borrowing 75% of the home's value, you'll pay a fee equal to 1.5% of the loan balance whereas you'd pay no fee if you had a 780+ credit score. But before these changes, you would have paid a whopping 2.75% fee. On a hypothetical $300k loan, that's a difference of $3750 in closing costs.
Elsewhere in the spectrum, things got worse. Borrowers with higher credit scores will generally be paying a bit more than they were under the previous structure.…This doesn't necessarily come out of your pocket upfront as lenders can offer higher interest rates in some cases and pay these costs for you (but the costs are still there, and still technically being paid by you over time in the form of higher interest rates).
Federal Housing Finance Agency Director Sandra L. Thompson called it "another step to ensure that [Fannie Mae and Freddie Mac] advance their mission of facilitating equitable and sustainable access to homeownership."
Punish those who are hardworking and pay their debts.
Reward those who don’t work and squander their money rather than pay what they owe.
Did Congress authorize this, or is it another communist scheme issued by fiat from the deep state?
Any lawyers out there? Is this legal? Can we reverse this in the courts?
Pity our standing to pursue private prosecution of a public right is lawlessly suppressed, otherwise we could sue to have the 10th Amendment honored.
My kids are gonna be upset with this. They’ve worked hard to finally get their credit scores to improve, and now that they’ve managed to do just that, they will be penalized for working so diligently. The system is BROKEN.
Thanks, Obama. I feel certain he had something to do with this. Something about fundamentally transforming this country.
My questions also. I doubt it’s legal.
almost certainly an administrative change not authorized by congress. This is the type of thing the SC has been shooting down a LOT recently.
Few years down the line will be a repeat of 2008 housing crisis, when the poor homeowners can’t afford the mortgage or the problems keeping up the house......
Just like Federal higher education financial aid.
Punish savers and reward debtors.
So... who else has decided to put off buying a home until this insanity passes?
I’ve told this story before, but here goes.
Twin daughters in grade school (4th grade?), different classrooms. One daughter comes home and talks about how the teacher placed a bunch of pennies around the room and they all went to find them. Some kids found 3 or 4 and some kids found 1 or 2.
The teacher asked them if that was fair or not, and what should they do about it. Well, the kids all put their heads together and they decided to split it up evenly and give the kids that didn’t have many pennies some of theirs to make it more fair. She was so proud of the fair solution they had come up with on their own. (Fourth grade remember.)
The other daughter comes home a couple of hours later. She was pissed off when she entered the door. “So the teacher made us play this stupid game.... All of the kids wanted to make it fair and to give away the extra pennies. I argued how it wasn’t fair. I was running all over and found 5 pennies. Tom and Johnny were just sitting at a table not doing anything! How is it fair that I have to give them each a penny!!?? It isn’t fair - it just made things equal!! But that’s not fair! I tried and tried to convince them not to do it, but I got out-voted. Well, one boy came over in my defense and changed is vote to no with me.” First daughter has always been compassionate, second daughter has always been a thinker.
Anyway, first daughter thought about it and said “Hey - you’re right, that isn’t fair!”
I told them to go back to their teachers and play that game every day for the rest of the week to see what would happen. They didn’t. (Fourth grade remember) But, we did talk about what would happen.
Daughter one just texted me about this mortgage thing. When she gets done with work I’ll ask her if it reminds her of anything!
Do you know a cave I could live in?
I’m getting sick of being the ant; maybe I’ll try the grasshopper route.
Maybe your kids can find a YouTube video, “How to Ruin Your Credit - Fast.”
I knew my brilliant strategy of having crap credit would pay off someday. Suckers!
Good for you!
I am not sure it matters anymore.
Biden is to blame!
No Big Deal!
Our communist masters know that the pathetically servile and indolent Aamerican people will just continue to roll over and spread their collective cheeks...
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