After the lending industry came out in full force against new upfront loan fees based on borrowers’ debt-to-income (DTI) ratios, the Federal Housing Finance Agency (FHFA) has announced a delay in their implementation, pushing their effective date back by three months.
The fees, which would be levied on loans with DTI ratios of 40% or higher, were set to go live on May 1. Their implementation has now been postponed to August 1 “to ensure a level playing field for all lenders to have sufficient time to deploy the fee,” according to a statement from the FHFA.
The fees were announced in January as part of new, redesigned grids of loan-level fees for the two government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac. The announcement elicited immediate, near-universal criticism from lenders, brokers and other industry stakeholders. The FHFA cited feedback from the mortgage industry “about the operational challenges of implementing the DTI ratio-based fee” in its decision to reschedule the fees’ rollout.
The FHFA also announced that lenders won’t be subjected to post-purchase adjustments related to the DTI-based fee for loans acquired by Fannie and Freddie between Aug. 1 and Dec. 31.
Scott Olson, executive director of the Community Home Lenders of America (CHLA), praised the FHFA for taking time to reassess the new fee before its rollout.
“CHLA very much appreciates this 3-month delay by FHFA in pricing changes for GSE borrowers with higher debt-to-income ratios,” Olson said.
“This delay will give [independent mortgage banks] 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.”
Olson isn’t alone in calling for a full repeal of the fees. The Mortgage Bankers Association sent a letter to the FHFA in February calling for a rollback of the fees, calling them “unworkable” given the potential shifts in a borrower’s income and expenses over the course of a loan application.
The MBA also joined other groups in pointing out that the recent reconfiguration of the general qualified mortgage rule has already suggested that DTI is an inefficient gauge of a borrower’s ability to repay.
“The timing of these changes is especially troubling given current stressed housing market conditions already making affordability a challenge, and the fast-approaching peak homebuying season,” wrote Bob Broeksmit, the MBA’s president and CEO, in the organization’s letter.
Broeksmit remained resolute about the need to reconsider DTI-based fees after the FHFA’s decision to delay.
“While we appreciate the delay, we are disappointed that FHFA’s statement did not recognize the need to consider alternatives to using a debt-to-income pricing adjustment,” Broeksmit said. “From the beginning, MBA has emphasized to FHFA that DTI-based loan level price adjustments simply are not workable for lenders and borrowers alike. 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.
“We 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.”