New mortgage fee won’t affect spring homebuyers after all

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Fannie Mae and Freddie Mac’s federal regulator says it will wait until after the spring homebuying season is over to implement a new fee aimed at some riskier borrowers who take out loans that might stretch their finances.

That’s welcome news to real estate industry trade groups that objected to the increase, but some would also like to see fees associated with the borrower’s debt-to-income (DTI) ratio done away with altogether.

The new upfront fee targeting borrowers taking out mortgages with debt-to-income ratios exceeding 40 percent was scheduled to take effect on May 1.

But in response to complaints from some lenders that implementing the new fee will pose operational challenges, the Federal Housing Finance Agency (FHFA) announced this week that it’s delaying rollout of the fee to Aug. 1, “to ensure a level playing field for all lenders to have sufficient time to deploy the fee.”

The new DTI ratio-based fee was one aspect of changes announced in January to the pricing matrices that are used to calculate upfront fees, known as loan level price adjustments (LLPAs), for mortgages slated to be sold to Fannie and Freddie.

While the FHFA has ordered Fannie and Freddie to waive upfront fees for first-time homebuyers of limited means, it’s making up at least some of the difference by charging higher fees for some borrowers who are better off — particularly those taking out loans with moderate down payments and higher debt-to-income ratios.

If they don’t qualify for a waiver, most homebuyers whose DTI ratio exceeds 40 percent will be subject to a 0.375 percent upfront fee, adding nearly $1,200 to the cost of taking out a $315,000 loan to buy the median-priced home. The new pricing matrices have also been recalibrated to include new credit score and loan-to-value ratio categories and differentiate between purchase loans, rate-and-term refinancing and cash-out refinancing — changes that are still taking effect May 1.

The National Association of Realtors (NAR) said in January that it supported waiving fees for first-time homebuyers of limited means, but not by raising fees on middle-class buyers.

From the perspective of the Mortgage Bankers Association, loan-level price adjustments based on debt-to-income (DTI) ratio will also present technical challenges for lenders.

“From the beginning, MBA has emphasized to FHFA that DTI-based loan level price adjustments simply are not workable for lenders and borrowers alike,” MBA CEO Bob Broeksmit said in a statement. “DTI can fluctuate throughout the mortgage application and underwriting process, and FHFA’s new fees will inevitably lead to borrowers’ costs changing between application and closing, requiring multiple redisclosures that will increase compliance costs and confuse borrowers.”

While Broeksmit said MBA members “appreciate the delay” in implementing the new fee, the trade group “will use the extra time offered by the change in the effective date to continue working with FHFA to explore alternatives that will not pose undue hardships on borrowers and lenders.”

An NAR spokesperson said in a statement to Inman Friday, that although the FHFA’s delay “is encouraging … we hope it is followed with further analysis and reconsideration of the impact of this change.”

“The upfront fee on higher DTIs is not only difficult to operationalize, but it also runs counter to the Enterprises’ and agencies’ historical use of compensating factors to offset risk without harming consumers,” NAR said.

The Community Home Lenders of America (CHLA), which represents small and mid-sized community-based mortgage lenders, issued a similar statement, saying the delay will give its members “more time to adjust to the complications created by this DTI pricing differential, and we continue to call on FHFA to reconsider this fee hike.”

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Email Matt Carter