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The 18 governors argue that changes to mortgage fees for federally backed loans meant to improve housing affordability actually hurts the housing system.
A group of Republican governors is urging the Biden administration to rescind changes it made last month to mortgage fees for federally backed loans. The adjustments dropped fees for borrowers with lower credit scores in an effort to make homeownership more widely affordable. But in a letter to the president, 18 governors argued the changes actually penalize “hardworking Americans.”
A month ago, the Federal Housing Finance Authority revamped its loan-level price adjustment fee structure to facilitate "equitable and sustainable access to homeownership.”
Loan-level price adjustments are risk-based fees charged to borrowers with home loans backed by Freddie Mac and Fannie Mae. The fees vary based on factors such as credit score, a loan-to-value ratio, and the property type. Borrowers who are considered “risky,” such as those with low credit scores, pay larger fees as a way of mitigating their liability.
The changes that went into effect last month lower the fees for these types of borrowers. At the same time, though, the FHFA has raised fees for some borrowers with good credit.
Several state officials and industry professionals have expressed concern over the changes, arguing that it’s unfair to raise fees for good-credit borrowers, especially during a housing shortage that has already driven up home prices.
In a letter addressed to President Joe Biden and FHFA Director Sandra Thompson on Wednesday, Georgia Gov. Brian Kemp and Missouri Gov. Mike Parson, along with 16 other Republican governors, describe the changes as “disincentivizing good credit behavior and penalizing responsible Americans. …By upending the existing financing model that relies on individual financial responsibility, you are increasing uncertainty in the housing market and our nation’s economy.”
GOP state officials aren’t alone in their concern. Republican lawmakers in the House introduced a bill that would block the amended pricing framework. The National Association of Realtors has spoken out against the changes, as have lending groups such as the Mortgage Bankers Association and the Community Home Lenders of America. They have argued the changes would hurt all borrowers.
But in a statement in late April, FHFA Director Sandra Thompson said a change to the fee matrix is long overdue and doesn’t increase costs for all borrowers with good credit.
“Some mistakenly assume that the prior pricing framework was somehow perfectly calibrated to risk—despite many years passing since that framework was reviewed comprehensively,” Thompson said. “The fees associated with a borrower’s credit score and down payment will now be better aligned with the expected long-term financial performance of those mortgages relative to their risks.”
Loan-level price adjustments have been around since 2008 when government-supported enterprises Freddie Mac and Fannie Mae chose to boost revenue by increasing fees for riskier loans. But in the 15 years since, the pricing framework became outdated, prompting the FHFA to launch a comprehensive review of the system in 2021.
Supporters of the revamp, such as the Urban Institute, argue that while homebuyers with higher credit scores might see increased fees, they are still paying less than lower credit borrowers based on their lower risk to lenders.