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."
Will this ONLY apply to new loans-—or are they adjusting EXISTING loans????
I would think that IF I have a FIXED loan rate-—it must sty FIXED.
HOW ABOUT A FEW MONTHS??????
ANOTHER LEGACY OF THE PARTICIPATION TROPHIES-———
Do nothing—
NO EFFORT-—
Get trophy !!!!!
Well, this is ironic...
I had no credit score. So, I put money down on a secured card and built up to 740. Now, I'll have to pay a surcharge for having a higher score.
I'm living on my boat.
This is how things work in Biden’s America, that’s for sure.
Your post makes me even more concerned for my kids.
“who else has decided to put off buying a home until this insanity passes?”
And there probably are some people who have mortgages, financially are able to pay them off, and will do exactly that.
This is another example of weaponized government. You won’t find anything in the constitution that gives any branch any power related to mortgages or housing. Let’s get back to some financial sanity and shutter and defund every part of the federal that has been weaponized against citizens.
I opted out of the consumer debt racket a few years ago. When I last checked, my credit score was under 100. Guess I’m going to get me some subsidies to buy my next $500K house. . .
So I asked my daughter what this mortgage thing reminded her of.
Without skipping a beat she said “that penny game”.
No surprise!
What about people who have no credit score at all? I’m talking about people who don’t take out loans or use credit cards. Are they affected by this policy?
The government shall decide how much retirement savings you are allowed to have when you retire. For example, if you saved $1.2 million, you may have $800K taken from your account and put into a pool for others "less fortunate" to share. You will be told that $400K is all you need, thank you very much.
I used to think the above scenario would never happen in America, but here we are.
you can rest assured that it will creep to existing mortgages and the loan threshold will go much, much lower.
yep pay it off now before they apply this retroactively to existing mortgages.
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