Industry Applauds FHFA Decision to Rescind DTI Fee
Written By: Joel Palmer, Op-Ed Writer
A wave of industry consternation about a new upfront mortgage fee led the Federal Housing Finance Agency (FHFA) to rescind it.
FHFA will no longer implement a new upfront fee for certain borrowers with a debt-to-income above 40 percent. The additional 0.375 percent fee on home loans that Fannie Mae and Freddie Mac would acquire was set to take effect August 1 after being delayed from its original May 1 implementation date.
"I appreciate the feedback FHFA has received from the mortgage industry and other market participants about the challenges of implementing the DTI ratio-based fee," said FHFA Director Sandra L. Thompson. "To continue this valuable dialogue, FHFA will provide additional transparency on the process for setting the Enterprises' single-family guarantee fees and will request public input on this issue.”
The organizations that protested the fee applauded the decision to rescind it.
“The GSE pricing grid is a complex balancing of the objectives of access to mortgage credit for underserved borrowers and safety and soundness – and CHLA believes today’s action to end the use of DTI LLPAs will enhance those dual objectives,” said Scott Olson, executive director of the Community Home Lenders of America.
“Borrowers who have proven adept at managing their obligations do not pose additional risk due to a few points on a DTI ratio,” said David M. Dworkin, President and CEO of the National Housing Conference. “In fact, many will save money by becoming homeowners in areas where rents are high. The DTI-based fees would have been confusing to borrowers and extremely difficult for lenders to implement.”
One lender noted that the 40 percent fee didn’t make sense when other agencies like Veterans Affairs, the U.S. Department of Agriculture and Federal Housing Administration allow a 50 percent DTI ratio without a mortgage fee adjustment.
The American Bankers Association noted that the move “does not address broader changes to loan-level price adjustment fees that took effect May 1 that have generated significant debate on Capitol Hill and in the media.”
On May 1, new upfront fees for purchase and rate-term refinance loans went into effect on mortgages secured by Fannie Mae and Freddie Mac. FHFA announced redesigned and recalibrated grids for upfront fees in January 2023, at the same time it announced the now-rescinded DTI fee.
The upfront loan level pricing adjustment (LLPA) structure employed by Fannie Mae and Freddie Mac is a risk-based pricing tool to encourage responsible lending and to protect taxpayers from undue risk. The agency said it’s “consistent with the Enterprise Regulatory Capital Framework finalized in 2020, appropriately capitalizing each Enterprise is critical to ensuring that they are well positioned to meet their mandate of providing liquidity and stability to the secondary mortgage market and supporting access to affordable mortgage credit throughout the nation.”
FHFA said in its statement that it will soon launch a Request for Input (RFI) on the single-family guarantee pricing framework.
“The FHFA’s decision to release a request for information on the other changes is a great example of good governance,” said National Association of Realtors President Kenny Parcell. “NAR has worked with the FHFA to shape the LLPAs since their inception in 2008. We look forward to a thoughtful and deliberate process for the public, industry, and the regulators to clarify misconceptions and to arrive at the best policy for home buyers and the market.”
“Risk-based pricing through loan level price adjustments (LLPAs) has outlived its purpose,” he said. “Guarantee fees (G-fees) on loans purchased by the enterprises are the appropriate mechanism for investors to pay for guarantees on the timely payment of principal and interest on mortgage-backed securities, ensuring a liquid and efficient market. To create a fair playing field for first-time homebuyers across all income levels, Fannie Mae and Freddie Mac should charge the same G-fee for everyone, as was the practice between 1938 and 2008, and as FHA loans do today.”
About the Author
As an NAMP® Opinion Editorial Contributor, Joel Palmer is a freelance writer who spent 10 years as a business and financial reporter and another 10 years in marketing for the insurance and financial services industries. He regularly writes about the mortgage industry, as well as residential and commercial real estate, investments, and retirement income planning. He has also ghostwritten books on starting a business, marketing, and retirement income planning.
