FHFA makes further changes to Fannie Mae, Freddie Mac pricing

The Federal Housing Finance Agency is making changes to the pricing for home loans Fannie Mae and Freddie Mac buy. Separately, they are lowering a fee for commingled mortgage-backed securities.

Previously planned price changes are now being codified in new matrixes with three base grids segmented for purchase, rate-term refinance, and cash-out refinance loans, recalibrated to new credit score and loan-to-value ratio categories, according to the FHFA's press release. 

Some additional granularity in pricing is also provided for loans with debt-income ratios greater than 40%, which may have upfront fees waived, capped or eliminated if borrowers meet other affordability criteria.

All the changes are aimed at lowering loan costs for low- to moderate-income borrowers while partially offsetting those reductions with increased pricing for mortgages that serve higher-income consumers, like cash-out, high balance and second-home loans. Checks and balances are necessary because Fannie Mae and Freddie Mac must manage the balancing act of maintaining sufficient capital buffers against financial risks at the same time that they seek to fulfill an affordable housing mission.

"These targeted pricing changes will allow the enterprises to better achieve their mission of facilitating equitable and sustainable access to homeownership, while improving their regulatory capital position over time," FHFA Director Sandra L. Thompson said in the press release.

The FHFA recently has made a number of moves aimed at striking the right balance between the two goals, which the new matrices will reflect.

The latest changes follow the announcement of the rollback of certain upfront fees last fall, and requests to increase the area median income limit used to determine eligibility for price breaks.

Loan pricing updates will broadly become effective for mortgages delivered to and acquired by the government-sponsored enterprises starting on May 1.

The Mortgage Bankers Association asked for some flexibility in the implementation date, noting that lenders may need some time to incorporate the matrixes into their pricing operations and assess their overall financial impact.

"FHFA's holistic review of the GSEs' up-front pricing framework has led to extensive reworking of the grids, and it will take some time to assess the full impact on borrowers and the market," Bob Broeksmit, president and CEO of the Mortgage Bankers Association, said in a press release. "Our initial review indicates that the new framework results in a modest net increase in overall pricing."

Broeksmit, however, was cautiously optimistic about price breaks offered for low down payment programs — which he said he would like to see go even further — and the separate reduction in the commingled mortgage-backed securities fee, which will begin on April 1.

"While MBA continues to believe that there should not be any fee for commingled securities, we appreciate FHFA's receptiveness to industry feedback and its willingness to make an adjustment," Broeksmit said in a separate press release.

That fee will be reduced from 50 basis points to 9.375.  Freddie Mac will apply the fee to collateral issued by Fannie Mae at the time that such collateral is being used for a new commingled security.

Multiple trade groups have been concerned that the fee added last summer was undermining the uniform MBS structure because it contributed to the perception Fannie and Freddie's bonds aren't interchangeable. The UMBS was created in Freddie's favor.

More adjustments to the UMBS fee may still be needed to protect the commingled securities' integrity, according to Michael Bright, CEO of Structured Finance Association, referring to the move as "an interim step."

"We look forward to working with the FHFA on any additional measures needed to protect against a bifurcation of the UMBS security," Bright said in a press release.