FHFA Rescinds Changes to LLPA Fees for Certain Homeowners

What to Know About the Latest Changes to LLPA Fees

Changes to DTI Fees & More Information on the Housing Market

In one of our latest blog posts, we discussed the changes that Freddie Mac and Fannie Mae had made to their Loan Level Price Adjustments, which are pricing adjustments that vary based on factors like your credit score, loan-to-value ratios, etc. One of the most significant changes that the Federal Housing Finance Agency, the governmental body that regulates Freddie Mac and Fannie Mae implemented was the addition of the Debt-to-Income ratio to the LLPAs. Your DTI is the ratio between your monthly debt payments divided by your gross monthly income. It is a great measure for lenders to see how much more monthly debt you can take on safely. Typically speaking, a 35% or less DTI is good, 36% to 49% is okay, and 50% or more requires immediate action. Lenders will typically want to see a less than 40% DTI ratio when looking at a potential homebuyer. Last week, however, the FHFA announced that they would repeal one of the changes to the DTI changes they announced previously.

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FHFA Announces Changes to Proposed DTI Fees

On May 10th, the FHFA announced that they would be rescinding a fee that would affect homebuyers who were receiving a loan from Freddie Mac and Fannie Mae with a DTI % larger than 40%. This move was celebrated by real estate and mortgage professionals, who had argued against the fee. Kenny Parcells, the president of the National Association of Realtors had this to say about the rescinded fee,

"We applaud the FHFA for listening to the industry’s concerns by choosing to drop this fee on borrowers with higher debt-to-income ratios. It would have imposed a cost on borrowers at a time in the market when affordability is already stretched and only made them riskier."

Sandra L. Thompson, the Director of the FHFA commented that,

"I appreciate the feedback FHFA has received from the mortgage industry and other market participants about the challenges of implementing the DTI ratio-based fee. To continue this valuable dialogue, FHFA will provide additional transparency on the process for setting the Enterprises’ single-family guarantee fees and will request public input on this issue."

Additional Factors Affecting the Housing Market

One of the factors that is having the greatest impact on the housing market currently, is the interest rate hikes from the Federal Reserve. On May 3rd, the Fed raised their benchmark interest by 25 basis points, taking the Federal Funds Rate range into 5.00% to 5.25%. This was the 10th raise in interest rates since the beginning of 2022, when the Fed started an aggressive campaign to bring down inflation which was running rampant throughout the U.S. economy. While the Federal Funds Rate does not directly affect mortgage rates, it affects financial institutions across the nation, including regional bankers who provide a substantial amount of home loans for members of the community. Lawrence Yun, Chief Economist for NAR, commented on the Fed’s latest interest rate hike during a forum earlier in the month, noting that,

"Consumer price inflation had been moving in the right direction - down - for months before the Fed’s latest hike last week. So, it wasn’t necessary for the Fed to raise rates again, and its monetary policy is making it difficult for some 4,000 small and regional banks around the country to lend cash. Regional banks are an important source of loans - but they’re frozen."

As homebuyers during the pandemic are all too familiar with, low inventory has been one of the largest issues with the current housing market, and the interest rates aren’t helping in that respect either. Robert Dietz, the chief economist for the National Association of Home Builders stated at the same forum that,

"By raising interest rates, the Fed has made it more expensive to build housing. Homebuilding is the policy we need to bring that inflation down, not interest rate hikes. We need to be building more than 1.1 million homes a year to have a meaningful impact on the lack of inventory."

With that being said, economists are optimistic that the Fed will cease its policy of raising the benchmark interest rate at its next meeting. Fed Chair Jerome Powell commented to reporters during his press conference for the latest interest rate hike that,

"I think we’ve moved a long way fairly quickly. I think we can afford to look at the data and make a careful assessment."

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