Genworth: Eliminate LLPAs and compensate with higher g-fees
Immediate elimination of loan-level price adjustments charged by Fannie Mae and Freddie Mac would help stimulate a housing recovery, according to Genworth Financial. The Raleigh, N.C.-based mortgage insurer laid out the LLPA reduction scenario along with several other recommendations in its response to the government's call for ways to improve the REO disposition programs of the GSEs and the Federal Housing Administration. Nearly 4,000 responses to the government's request for information were received. "The current LLPA scheme unnecessarily drives up the cost of homeownership and has the greatest adverse impact on first-time homebuyers and borrowers who cannot afford a high down payment — borrowers who will be central to any housing recovery," Genworth said in its RFI. Rather than digest "these punitive 'risk-based' fees, the enterprises could simply increase guarantee fees by a modest amount" (about 5 basis points) on all loans they purchase, the company said. Genworth sets out an example using a borrower with a 719 FICO score, a 5% down payment and a $250,000 loan. Such a borrower now pays about $2,500 for loan-level price adjustments, the company said. The same borrower would pay $90 annually or about $630 assuming a seven-year loan life if guarantee fees were increased. The ultimate impact to the GSEs would be the same under either approach, keeping with the Federal Housing Finance Agency's obligations as conservator of Fannie and Freddie, Genworth contends. The current loan-level fees, the company argues, put the revenue burden on the backs of the borrowers least able to bear it. The GSEs steadily increased g-fees since conservatorship, and that is likely to continue, Edward DeMarco, acting director of the FHFA, said in a recent speech at the American Mortgage Conference. DeMarco also said loan-level price adjustments, representations and warranties, valuation requirements, and portability of mortgage insurance coverage are being considered on potential revamps to the government's Home Affordable Refinance Program. But he also noted "HARP is not a mass refinancing program; it was designed to address a particular segment of borrowers with loans guaranteed by the enterprises." Genworth, in its RFI, advocated several changes to HARP, including eliminating the 125% loan-to-value cap and cut-off dates, and not restarting the clock on reps and warrants. The company also advocates use of principal writedowns and adjustments to the Home Affordable Modification Program. Write to Kerry Curry. Follow her on Twitter @communicatorKLC.