The Federal Housing Finance Agency's latest response to critics of its new price grids and plans for its Enterprise Capital Framework is to get some feedback on what others think it should be doing instead.
The agency is seeking ideas on what the overall goals should be, and whether upfront guarantee fees lenders pay should continue to be linked to the framework, which is aimed at protecting the finances of government-related investors that lenders sell to.
"FHFA seeks input on how to ensure the pricing framework adequately protects the Enterprises and taxpayers against potential future losses, supports affordable, sustainable housing and first-time homebuyers, and fosters liquidity in the secondary mortgage market," said Director Sandra L. Thompson in a press release.
The FHFA has made a series of moves to better align its pricing and capital frameworks.
The backstory behind the most recent steps taken
The latest move follows through on the FHFA's earlier promise to get more feedback on pricing policy in conjunction with
This appeased some lenders, but a larger set of changes recently implemented still has some critics.
So too do some aspects of
The Mortgage Bankers Association, for example, in a letter late last week asked the FHFA to potentially rethink things like a risk surcharge on third-party originated loans and a change to representative credit score calculations.
Meanwhile, at least three Republican-sponsored House bills have called for the rollback of the most recent changes to loan-level price adjustments based on assertions that in certain situations, some borrowers with better credit have seen fees go up while consumers in lower score bands got a break on pricing.
Thompson has said that the risk-based fees government-related secondary market investors have long used to price a lot of loans in the United States
Some of the bills seeking the rollback of the most recent LLPA changes specify that they are not targeting risk-based pricing overall, and all generally refer to only the grid announced in January.
With the plan for the introduction of new DTI-based pricing removed, lenders say the remaining credit score, loan-to-value ratio and occupancy-based criteria used in the most recent adjustments are more in line with the status quo.
"The charges have always been associated with occupancy type, FICO, and LTV," said Christy Bunce, president of New American Funding,
However, the most recent adjustments for these factors are somewhat different than in the past because they are in line with what the FHFA has characterized as an overdue need to update the grids for modernized notions of risk.
What it's meant for lenders and borrowers
The upshot of all these recent developments for the mortgage industry has generally been partial relief that the new DTI factor and potential operational difficulties associated with it are no longer concerns, tempered by worries that the ongoing discussion around pricing adjustments could be leading to consumer misapprehension.
Lenders say both they and certain borrowers will benefit from the DTI rollback.
"The removal of the DTI fees has had no impact on rates or pricing as it was for loans that closed after Aug. 1," said Melissa Cohn, regional vice president at William Raveis Mortgage. "Most banks were preparing to implement the additional pricing at the end of May but had not yet activated it."
However, some borrowers with debt-to-incomes above 40% might have experienced an incremental addition to the base market rate of around 0.125% had it gone through, depending on what other pricing factors were at play, Cohn said.
LLPAs don't on their own determine what rate a particular borrower pays for a loan but do factor into that calculation. When rates were near record lows amid the pandemic's refinancing boom they were paid less mind.
Ralph Murciano, a branch manager at Embrace Home Loans, likens the LLPAs to ingredients in the recipe for the rate, and he's seen some borrowers mistakenly look at them in isolation and assuming they'll be a negative for them.
Some "heat maps" have been used to depict grids of loan characteristics where red indicates some fees rose recently for some borrowers with factors that include strong credit while green shows they fell for others with profiles that include lower scores have contributed to the anxiety.
"A chart with a lot of red in it can be scary," he said. "What happened was when some of these maps were put out, it looked like that the higher credit borrowers were paying more than lower score borrowers and it's more that the spread between them that got to be a little bit less.
"It certainly is still generally true that if you have a higher credit score and a lower down payment, it's better," Murciano said.
Some first-time or lower-income borrowers may even get them waived under earlier changes the FHFA made, regardless of other characteristics, he noted.
But in an attempt to make more substantive changes to address affordable and
Giving borrowers a little bit of a break on their down payment and credit score isn't a bad idea when it comes to meeting these goals but one has to be very careful of the alignment of incentives involved, said Bunce, whose company has actively pursued similar aims.
"I like the direction they're going as far as making an effort to figure out how to get a lower FICO or higher LTV customer into a home, because these aren't all customers that should be labeled 'bad credit,' they just have had different things go on in their life where it could affect their FICO and they don't have access to cash like some other customers," she said.
"I just don't know if customers who have been able to sock away a lot of cash so they can have a bigger down payment, or who have built credit so they have a higher FICO, should take a hit," she said, noting dialogue on the issue could be helpful in finding the right balance.
