Fannie Mae and Freddie Mac’s federal regulator is ordering the mortgage giants to eliminate upfront fees on many purchase loans to help first-time homebuyers of limited means, and also increase fees for most cash-out refinancings early next year.
The revisions to Fannie and Freddie’s pricing framework — which are expected to benefit about one in five homebuyers taking out loans backed by the government-sponsored enterprises — were announced Monday by Federal Housing Finance Agency Director Sandra Thompson.
In a keynote address at the Mortgage Bankers Association’s annual convention in Nashville, Thompson also detailed major revisions to the procedures lenders will be required to use when evaluating borrowers’ creditworthiness.
Lenders doing business with Fannie and Freddie will be required to provide two credit scores — the FICO 10T and VantageScore 4.0 — which are seen as more inclusive, and will replace the Classic FICO score that’s been in use for nearly two decades.
Regulators are acutely aware of the impact that rising mortgage rates and home prices have had on housing markets, and are looking for ways to provide relief without putting Fannie and Freddie at risk.
Upfront fees are to be eliminated for:- First-time homebuyers at or below 100 percent of area median income (AMI) in most markets, or below 120 percent of AMI in high-cost areas
- Fannie and Freddie’s affordable mortgage programs, HomeReady and Home Possible, which let homebuyers put as little as 3 percent down
- HFA Preferred and HFA Advantage loans, offered by Fannie and Freddie through state housing finance agencies (HFAs)
- Single-family loans supporting the Duty to Serve program in support of manufactured housing and rural housing
Real estate industry trade groups including the MBA and the National Association of Realtors are also pushing for the Department of Housing and Urban Development to lower FHA mortgage insurance premiums to help address affordability challenges. The upfront fees that Fannie and Freddie charges lenders, sometimes referred to as delivery fees or loan-level price adjustments (LLPAs), can add thousands of dollars in costs that lenders pass along to homebuyers, particularly those with blemished credit making smaller down payments.
Beginning Feb. 1, 2023, FHFA said it plans to update upfront fees for cash-out refinance loans “to reflect a range of pricing changes.” Most homeowners doing cash-out refinances will pay higher upfront fees of up to 1 percentage point, but in some cases fees will be decreased by up to 1 percentage point.
Credit score changes
By doing away with the standby Classic FICO score and replacing it with two scores — the FICO 10T and VantageScore 4.0 — FHFA hopes to not only expand access to credit, but improve risk management.
The FHFA maintains that the FICO 10T and VantageScore 4.0 scores are more inclusive, because they can analyze new factors such as rent and utility payments.
Appraisal data
As part of ongoing efforts to reduce appraisal bias and provide transparency into the home valuation process, the FHFA also announced the release of a huge data file aggregating 47.3 million appraisal records dating back to 2013.
Thompson said the Uniform Appraisal Dataset (UAD) Aggregate Statistics Data File will help the public compare appraisal gaps in minority neighborhoods, and evaluate trends in appraised values at the national, state and local level.
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