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."
Enough to cause a revolution.
bkmk
“”Did Congress authorize this,””
Don’t see any sign of that at all...
.
“I doubt it’s legal.”
The problem is, who is going to challenge it? You have to have “standing” to bring suit and any suit will cost WAY more than just paying the fee.
Also, the fee is small, but it’s the camel’s nose under the tent.
Private retirement accounts being nationalized can’t be too far down the road from this too.
Maybe they’ll use credit scores and ESG scores to determine how much is too much retirement savings for one individual.
It is called SOCIALISM……have to keep the voters in check.
About the same concept as the student loan forgiveness debacle. They’re buying votes with OUR money against our wills. I have a credit score of 804. Why do I have to pay more for a loan due to a credit score EARNED from sacrifice, doing without and on-time payments my ENTIRE life????????? The people they’re trying to help have largely lead irresponsible lives. This is maddening. Please tell me a country to which I may move to escape some of this.
Communism at it’s finest - from each according to their means and to each according to their needs.
Of course it does not work out that way. The elite always get what they want and everyone else struggles.
No revolution until they start killing peoples’ dogs and cats. They won’t touch peoples’ pets because that WOULD start a revolution. Remember Ruby Ridge? What started it all?
https://www.youtube.com/watch?v=mzJmTCYmo9g&t=218s
Above is Bird and Fortune’s comedy bit about the Subprime Crisis. When I first saw it I didn’t realize it was a comedy as it was so spot on.
At 3:06 they talk about the 2008 situation. “This package of dodgy-debts then becomes a high-investment value equity.”
I’ve spent 50 years working to raise and keep my credit score high. My kids learned that from us and also have good credit scores. This really makes me angry. Fortunately my kids are conservative already. Our son who is a musician and used to be very liberal is voting all red. Yay. We have one mortgage (four properties) and thought about refinancing it but then the rates went up and of course there’s no way we will refinance at this time.
Great story.
It’s even worse than being presented. I am a mortgage banker with over 30 years of experience. I work for one of the largest financial companies in the country. Loan level pricing adjusters have been around forever and loan level pricing adjusters for credit scores were implemented in the aftermath of the 2008 financial crisis.
This is why it is worse than it looks. Borrowers with credit scores of 620 to 679 don’t get approved for conventional loans that are sold to Fannie and Freddie except for rare occasions. Think of low credit score borrowers with huge down payments and lots of cash reserves which happens almost never. The lower credit score borrowers are typically FHA home buyers so there is no benefit for them. This rule change is just a shaft to the higher credit score borrowers who pay their bills on time and play by the rules.
Fannie Mae and Freddie Mac — the @$$-backwards of lending agencies. Let’s go, Brandon!
We live in a post rule-of-law world now.
It’s a tax
you wonder how they're going to take from the upper and middle class and give it to the lower classes this how....bit by bit....
That is what every government program does.
We live in a very liberal area, so we did a lot of undoing the teacher’s “teaching” at the dinner table each night. I think it helped our kids to stay conservative as they got older as they got both sides of the picture early on.
BUT - this was the end goal of those teachers in promoting that “fairness” game indoctrination. 15 years later those same kids are now out there voting for “fair” mortgages and “fair” college loans, etc.
Not just about money...It is about lower income people who can’t or won’t take care of their property bringing everybody’s house value down.Annnnd that doesn’t even take into account the home invasions,flash mobs of “teens” etc..........
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