The Federal Housing Finance Agency announced Wednesday, May 10, 2023, that it is rescinding a controversial proposed loan-level pricing adjustment upfront fee that was to be based on a borrower’s debt-to-income ratio. The proposed LLPA fee, which would have taken effect Aug. 1, stood to impact borrowers with debt-to-income ratios greater than 40%. The fee would have applied to loans acquired by Fannie Mae and Freddie Mac, which the FHFA regulates.
The National Association of REALTORS® and other real estate industry groups spoke out against the proposed upfront fee, saying it would have put undue financial burden on mortgage holders. “We are pleased our advocacy efforts on behalf of our 1.5 million members and their clients were successful,” NAR President Kenny Parcell said in a statement. “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.”
Earlier this year, NAR wrote a letter to the FHFA, urging the agency to require factors such as higher credit scores or larger down payments to offset the risk from higher debt-to-income borrowers instead of deciding to charge them higher fees. In March, the FHFA announced it was delaying implementing the fee change to learn more from industry stakeholders about the outcry over the proposed fee.
“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,” FHFA Director Sandra L. Thompson said in a statement. “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.”
NAR has worked with the FHFA on LLPAs since the agency’s inception in 2008. “We look forward to a thoughtful and deliberate process for the public, industry and the regulators to clarify misconception and to arrive at the best policy for home buyers and the market,” Parcell said.
The FHFA also announced it was conducting a request for public input on other fees, such as those imposed on borrowers with higher credit scores and moderate down payments. Those fees will take effect May 1.