Industry and consumer groups are calling on the Federal Housing Finance Agency to reduce the loan fees that homebuyers have to pay on Fannie Mae and Freddie Mac guaranteed mortgage loans.
In a letter sent to FHFA Director Mel Watt on Wednesday, 25 groups urged him to eliminate loan level price adjustment fees that Fannie and Freddie introduced in 2008 to address growing default risks.
LLPAs can total up to 4% of the loan value for some borrowers, with the fees often falling the hardest on low- and moderate-income borrowers, minorities and first-time homebuyers.
"We therefore request that FHFA direct the GSEs to reduce or eliminated LLPAs going forward," the joint letter says.
The letter was signed by the American Bankers Association, the Credit Union National Association, Center for Responsible Lending, Consumer Federation of America, National Association of Federal Credit Unions and the Mortgage Bankers Association, among others.
The letter points out that Fannie and Freddie raised their guarantee fees from 22 basis points in 2007 to 58 basis points in 2014. The combination of the G-fees and LLPAs has priced many qualified borrowers out of the conforming loan market.
"Eight years after the financial crisis, mortgage credit quality has improved dramatically and regulations have improved the industry's risk management practices. We believe these changes justify eliminating LLPAs," the letter says.
An FHFA spokeswoman said it had received the letter and will respond.
Edward Mills, a policy analyst and managing director at FBR Capital Markets noted that FHFA has to be wary of any fee reductions because of possible hedging losses by the government-sponsored enterprises. "If the risk of these losses or draws increases, it will become more difficult for FHFA to lower pricing," Mills said in a report Wednesday.
Lindsey Johnson, president of the U.S. Mortgage Insurers, which signed the letter, said "housing credit remains too tight" and "low-down-payment borrowers are being double charged for the risk being assumed by private mortgage insurance."
Tom Salomone, president of the National Association of Realtors, another signatory, said LLPAs lock too many creditworthy borrowers out of the market.
"FHFA can direct the GSEs to reduce or eliminate those fees right now, in recognition of the good work that's been done to manage risk at the GSEs. We believe that should happen so more responsible borrowers can take the step towards homeownership," Salomone said in a statement.
The other signers are:
- America's Homeowner Alliance
- American Escrow Association
- American Land Title Association
- Asian Real Estate Association of America
- Community Association Institute
- Consumer Mortgage Coalition
- Credit Union National Association
- Enterprise Community Partners
- Habitat for Humanity International
- NAACP
- National Association of Hispanic Real Estate Professionals
- National Association of Home Builders
- National Association of Real Estate Brokers
- National Council of La Raza
- National Fair Housing Alliance
- National Housing Conference
- Real Estate Settlement Procedures Council
- The Realty Alliance
