The controversial changes to loan level pricing adjustment (LLPA) fees recently introduced by the Federal Housing Finance Agency (FHFA) have run into a new roadblock: Congress.
On Thursday, a group of 34 Republican lawmakers in the House of Representatives, led by Rep. Andy Biggs, R.-Ariz., introduced the Responsible Borrower Protection Act of 2023. If passed, the legislation would block the amended pricing framework for Fannie Mae and Freddie Mac introduced by the FHFA earlier this year.
The new framework includes several changes from the previous iteration, including increased pricing for borrowers with higher debt-to-income (DTI) ratios and elimination of upfront fees for certain groups, such as first-time homebuyers with lower incomes.
Various aspects of the new framework, however, have had groups such as the Mortgage Bankers Association (MBA), the National Association of Realtors and the Community Home Lenders of America (CHLA) voicing their displeasure and urging the FHFA to reconsider the implementation of the new fees. For one thing, fee hikes to certain loans had such organizations apprehensive that the increases would hurt middle-class homebuyers or those looking to purchase second homes, especially during a tumultuous time for the real estate industry.
Lending groups have also raised specific concerns about the DTI-based adjustments, with many pointing out that DTI as a stand-alone measure has been shown to be an inefficient metric for a borrower’s ability to repay. Additionally, a borrower’s income and expenses can fluctuate over the course of a loan application, causing several changes to the pricing of a mortgage during the loan process. This could result in a snarl of compliance issues in terms of proper disclosure of prices to borrowers — leading MBA president Bob Broeksmit to call the new structure “unworkable” in a February letter to the FHFA.
Such concerns led the FHFA to announce in March that the fee implementation had been delayed, pushing the effective date back from May 1 to Aug. 1 of this year. The move was met with praise from industry groups, but Broeksmit, CHLA executive director Scott Olson and others have remained steadfast in pushing the FHFA to go one step further and rolling the pricing changes back completely.
Now, Biggs and other lawmakers have joined the chorus against the fees, with Biggs’ group asserting that the new LLPA fees would “subsidize mortgage borrowers with lower credit scores beginning on May 1, 2023.”
“The FHFA — led by a President Biden-appointed director — is punishing financially responsible mortgage borrowers,” Biggs said. “Their agenda of equity over equality defies common sense and will endanger the stability of the housing market. I hear regularly from constituents about the high cost of housing, which has been exacerbated by the insane interest rates imposed to combat Biden’s skyrocketing inflation.
“If implemented, the latest FHFA fee change could result in thousands of dollars in additional fees for lower-risk homeowners over time while encouraging and rewarding financial irresponsibility. My legislation prohibits the new fees from going into effect and I’m grateful for the support of more than 30 of my House Republican colleagues.”
With the heightened focus on the pricing framework changes, FHFA director Sandra L. Thompson released a statement on Tuesday — two days before the introduction of Biggs’ bill — that sought to “set the record straight.”
According to Thompson, recalibrating the fees “seems to have attracted a series of recent misconceptions despite being announced over three months ago.” Among the misconceptions addressed in Thompson’s statement were:
- “Higher credit-score borrowers are not being charged more so that lower credit-score borrowers can pay less. The updated fees, as was true of the prior fees, generally increase as credit scores decrease for any given level of downpayment.”
- “Some updated fees are higher and some are lower, in differing amounts. They do not represent pure decreases for high-risk borrowers or pure increases for low-risk borrowers. Many borrowers with high credit scores or large downpayments will see their fees decrease or remain flat.”
- “The targeted eliminations of upfront fees for borrowers with lower incomes – not lower credit scores – primarily are supported by the higher fees on products such as second homes and cash-out refinances. The enterprises’ statutory charters specifically include references to supporting low- and moderate-income families by earning returns on mortgages for these borrowers that may be less than the returns earned on other products.”