Pricing exceptions are widespread in mortgage — and so are the regulatory risks

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Politics & Money

Lawmakers introduce bill to block LLPA fee changes

Sponsors say the bill will prevent harm to good-credit borrowers

A group of Republican lawmakers in the U.S. House of Representatives, led by Rep. Andy Biggs (R-Ariz.), recently introduced a bill that, if passed, would block changes to the Federal Housing Finance Agency‘s (FHFA) loan level pricing adjustment (LLPA) fees charged by Fannie Mae and Freddie Mac on conventional/conforming mortgages.

With 34 Republican co-sponsors, the bill — known as the “Responsible Borrower Protection Act of 2023” — would “cancel certain proposed changes to credit fees charged by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation, and for other purposes.”

Rep. Biggs said the bill is in response to proposed changes that were initially announced in January and would be too onerous for mortgage borrowers with good credit.

“The FHFA—led by a President Biden appointed director—is punishing financially responsible mortgage borrowers,” Biggs said in a statement. “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 the new rules are implemented, the FHFA fee change could result in “thousands of dollars in additional fees for lower-risk homeowners over time, while encouraging and rewarding financial irresponsibility,” Biggs said.

The bill has garnered support from numerous conservative organizations, including FreedomWorks, Heritage Action, and Club for Growth.

However, FHFA Director Sandra Thompson recently said the information circulating about more expensive LLPA fees for higher-credit borrowers are misconceptions, and that the changes align with the chartered purpose of FHFA as a “soundness regulator.”

“Higher-credit-score borrowers are not being charged more so that lower-credit-score borrowers can pay less,” Thompson said in a statement released this week. “The updated fees, as was true of the prior fees, generally increase as credit scores decrease for any given level of down payment.”

The FHFA made a series of changes to LLPA fees in January, with a revamped LLPA matrix that differentiates pricing by loan purpose. The National Association of Realtors (NAR) and the Mortgage Bankers Association (MBA) responded to the announcement, stating that the new changes could hurt middle-class homebuyers while increasing overall pricing.

In March, the FHFA announced that it would be delaying the upfront pricing fee on DTI ratios of 40% or more to August 1, 2023.

“[L]enders will not be subject to post-purchase price adjustments related to this DTI ratio-based fee for loans acquired by the Enterprises between August 1, 2023, and December 31, 2023,” Director Thompson said.

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