Changes to mortgage rules will see good borrowers pay more, risky borrowers pay less

A change by Fannie Mae and Freddie Mac is likely to anger borrowers with solid credit ratings and cash in an already tumultuous housing market.
Home For Sale Real Estate Sign in Front of New House.

A little-noticed change to Federal rules on mortgages is forcing good-credit homebuyers to subsidize discounted mortgages for risky borrowers.

The move, made by Fannie Mae and Freddie Mac, is known as a loan-level price adjustment.


Zooming in: The fee change by the two government-backed mortgage firms will affect mortages originating at private banks effective May 1.

The changes will offer discounted rates for home buyers with riskier credit backgrounds and force higher-credit homebuyers to pay more.

The result will be pricier monthly mortgage payments for most homebuyers, which will be an ugly surprise for those who worked for years to build their credit.

The Federal Housing Finance Agency (FHFA) ordered the overhaul of LLPAs to boost affordability for first-time buyers, low-income borrowers, and applicants from underserved communities.

The changes will result in an average price hike of just three to four basis points, or 0.03% to 0.04%, across the spectrum of mortgage recipients.

High-credit buyers with scores ranging from 680 to above 780 will see a spike in their mortgage costs, with applicants who place 15% to 20% down payment experiencing the biggest increase in fees.

Credit scores of 679 or lower will have their fees slashed, resulting in more favorable mortgage rates.

The FHFA asserts the LLPA changes will help maintain financial health at Fannie and Freddie, a key element of its responsibility as conservator.

What they’re saying: “It’s going to be a challenge trying to explain to somebody that says, ‘I worked my whole life for high credit and I’ve put a lot of money down and you’re telling me that’s a negative now?’ That’s a hard conversation to have,” one worried Arizona-based mortgage loan originator told The New York Post.

  • “It’s unprecedented,” added David Stevens, who served as Federal Housing Administration commissioner during the Obama administration. “My email is full from mortgage companies and CEOs [telling] me how unbelievably shocked they are by this move.” 
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