Changes to fees for loans backed by Fannie Mae and Freddie Mac continue to be a hot topic as Republicans push to repeal them.
The changes to the loan-level price adjustment matrix by officials at the Federal Housing Finance Agency went into effect May 1, and critics are opposed to the notion that homebuyers with good credit scores and substantial down payments will pay more so fees for borrowers limited by income or wealth can be reduced.
While speaking before the House Financial Services Committee on Wednesday, Davidson said officials at the FHFA have an extraordinary level of authority in the housing landscape, including over the cost of mortgages. He said his legislation would bring independent oversight to the process of setting the government-sponsored enterprises’ upfront fees.
“It would put in place a one-year freeze on FHFA’s ability to make additional fee changes while the GAO, the government accounting office, reviews and brings transparency to the FHFA’s process with underlying data. It would also allow the public and key stakeholders the opportunity to review and comment on any (loan-level pricing adjustment) fee change in the future as any federal agency should do when enacting policies that affect millions of Americans,” Davidson said.
Davidson said the bill, which passed through the committee, comes at a critical time for consumers facing inflation and interest rate increases.
Rep. Mike Lawler, R-New York, who is a co-sponsor of Davidson’s bill, introduced the Fairness in Borrowing Act last month. He said, “Forcing homeowners with good credit to pay for risky mortgages taken on by those with bad credit is insane and anti-American.”
FHFA Director Sandra Thompson has defended the series of steps it has taken to update the enterprises’ pricing framework. Thompson said the pricing grids had not been upgraded in many years. Some low-to-moderate income borrowers were overcharged while other borrowers were undercharged prior to the changes, she said.
“In the new pricing grids, borrowers with strong credit profiles are not being penalized at the expense of borrowers with weaker credit profiles. Put another way, even with reduced fees, borrowers with lower credit scores and lower down payments will continue to pay higher overall mortgage costs than borrowers with higher credit scores and higher down payments,” Thompson said.
Thompson said mortgage insurance premiums are required for borrowers who put down less than 20 percent, which does not show up on the pricing grids.
“The less down payment you have, the more mortgage insurance coverage you need and the higher the costs,” Thompson said.
Civil rights and housing policy leaders issued a statement supporting the FHFA’s new pricing framework.
In a statement by the Center for Responsible Lending, leaders argued that the former loan-level price adjustment matrix created in the wake of the 2008 financial crisis had a disproportionate effect on borrowers of color. The organizations urged the administration to prioritize restoring safe, fair and inclusive mortgage pricing.
“The updates help address persistent gaps in wealth and homeownership while also improving safety and soundness for Fannie Mae and Freddie Mac. It is unfortunate that recent inaccurate criticism of the updates has been issued without the context of data, analysis or history,” the statement says.
Housing affordability remains the biggest challenge for shoppers. Mortgage payments on a home purchase today are more than 85 percent higher than before the pandemic, and wages haven’t kept up, said Orphe Divounguy, senior macroeconomist at Zillow Home Loans.
“With these fee changes, policymakers are trying to level the playing field for first-time buyers. Some borrowers will pay lower fees and some will pay higher fees, but the spread will be smaller,” Divounguy said.
Mortgage applications have fallen as the average interest rate for 30-year fixed loans rose from 6.57 percent to 6.69 percent, the highest level since March.