The Federal Housing Finance Agency (FHFA) has announced further changes to Fannie Mae's and Freddie Mac’s single-family pricing framework. The changes introduce redesigned and recalibrated upfront fee matrices for purchase, rate-term refinance, and cash-out refinance loans.
The pricing changes will broadly impact purchase and rate-term refinance loans and build on the upfront fee changes announced by FHFA in January and October 2022, which have been integrated into the new grids. The new fee matrices consist of three base grids by loan purpose for purchase, rate-term refinance, and cash-out refinance loans.
These matrices will be recalibrated to new credit score and loan-to-value ratio categories. Additionally, changes to the Loan Level Price Adjustment includes the addition of a fee on certain loans with a debt-to-income ratio greater than 40%.
"These changes to upfront fees will strengthen the safety and soundness of the [government-sponsored enterprises] by enhancing their ability to improve their capital position over time," says FHFA director Sandra L. Thompson. “By locking in the upfront fee eliminations announced last October, FHFA is taking another step to ensure that the GSEs advance their mission of facilitating equitable and sustainable access to homeownership.”
The NAHB analyzed the adjustments and shares that the new framework will increase upfront costs in some categories of single-family loans acquired by Fannie Mae and Freddie Mac and decrease upfront costs in other categories, which will result in an overall modest increase.
However, the following categories of loans will continue to have no upfront fees at all: first-time home buyers at or below 100% of area median income in most of the U.S. and below 120% of AMI in high-cost areas; HomeReady and Home Possible loans; HFA Advantage and HFA Preferred loans; and single-family loans supporting the Duty to Serve program.
To minimize the potential for market or pipeline disruption, the updated fees will take effect for loan deliveries and acquisitions will begin May 1, 2023.
The Mortgage Bankers Association (MBA) urged FHFA to be flexible with its May implementation date in case the industry needs more time to integrate these updates and the recalibration of the upfront fee matrix into mortgage pricing.
“FHFA’s holistic review of the GSEs’ upfront pricing framework has led to extensive reworking of the grids, and it will take some time to assess the full impact on borrowers and the market," says Bob Broeksmit, CMB, president and CEO of the MBA. “Our initial review indicates that the new framework results in a modest net increase in overall pricing, which is a concern given ongoing affordability challenges and the higher interest rate environment. With the peak home buying season coinciding with these changes, FHFA should consider additional program changes to improve affordability, including raising the area median income threshold for the GSEs’ low down payment products. This move would expand eligibility for borrowers who can meet the monthly obligation of a mortgage payment but do not have significant savings to make a large down payment."
