Facing pressure from multiple fronts, the Federal Housing Finance Agency (FHFA) changed course on part of a new fee structure that it announced earlier this year, specifically rescinding the upfront fees based on a borrower’s debt-to-income (DTI) ratio for loans acquired by Fannie Mae and Freddie Mac.
The now-rescinded fees, first publicized by the FHFA in January, increased pricing for borrowers with higher DTI ratios. The change proved unpopular from the start, with several real estate and lending groups, including the Mortgage Bankers Association (MBA), Community Home Lenders of America (CHLA) and National Housing Conference (NHC), vocalizing their criticisms early and often.
Complaints were various and diverse. Many noted that DTI has been previously shown to be inconsistent in evaluating a borrower’s ability to repay and that the qualified mortgage rule had been amended to reflect that. Additionally, changes in a borrower’s income and expenses could happen multiple times over the course of the loan approval process. Because disclosure laws require lenders to alert borrowers of pricing details throughout the application process, concerns were voiced that DTI-based fees would have put an unmanageable compliance burden on many companies, especially smaller ones.
Such critiques prompted the FHFA in March to delay the start of the controversial fees from May 1 to Aug. 1. While industry groups praised the agency for acting, they also doubled down on their calls for the fees to be fully repealed. Legislators even got into the act last month, with a consortium of House Republicans introducing a bill to block the amended pricing framework that included the DTI-based fees.
Unsurprisingly, the FHFA’s withdrawal of the fee structure was celebrated by the mortgage industry.
“We have strongly opposed FHFA’s planned debt-to-income loan level pricing adjustment since it was announced in January and have led advocacy efforts calling for its removal,” said MBA president and CEO Bob Broeksmit. “The proposed fee was unworkable for lenders and would have confused borrowers and undermined the customer experience. We are pleased that FHFA engaged with industry stakeholders, recognized the negative impacts of the fee and decided to rescind its implementation.”
“Today’s decision by the Federal Housing Finance Agency (FHFA) to rescind fees based on a borrower’s debt-to-income ratio for loans acquired by Fannie Mae and Freddie Mac … will help well-qualified first-time homebuyers whose total debt load approaches the 40% ratio,” said David Dworkin, the NHC’s president and CEO.
“Borrowers who have proven adept at managing their obligations do not pose additional risk due to a few points on a DTI ratio. In fact, many will save money by becoming homeowners in areas where rents are high. The DTI-based fees would have been confusing to borrowers and extremely difficult for lenders to implement.”
CHLA executive director Scott Olson commended FHFA director Sandra Thompson for the decision.
“The [government-sponsored enterprise] pricing grid is a complex balancing of the objectives of access to mortgage credit for underserved borrowers and safety and soundness — and CHLA believes today’s action to end the use of DTI [loan level pricing adjustments] will enhance those dual objectives.”