The Federal Housing Finance Agency (FHF)A announced Fannie Mae and Freddie Mac (the Enterprises) would be making changes to their single-family pricing framework by redesigning and recalibrating upfront fee matrices for purchase, rate-term finance, and cash-out refinance loans.
Of note, it was announced the upfront fee for commingled securities would be reduced by 9.375 basis points starting May 1.
In its lender letter announcing the new loan-level price adjustment (LLPA) framework, Fannie Mae said the additional changes build on those the Enterprise announced last year, which included price changes for second homes, high-balance loans, and cash-out refinances, as well as LLPA waivers for certain borrowers and affordable mortgage products.
“We are implementing additional changes to our LLPA framework that represent the next step in our effort to increase support for borrowers historically underserved by the housing finance market while ensuring a level playing field for small and large lenders, fostering capital accumulation, and achieving viable returns on capital,” the letter stated.
“In addition, we are introducing a revamped LLPA matrix that differentiates pricing by loan purpose,” it continued. “By capturing all LLPAs associated with each loan purpose on one page, we believe the new matrix is concise and comprehensive. The redesigned LLPA matrix includes stand-alone, base price grids for purchase loans, limited cash-out refinance loans, and cash-out refinance loans, along with additional LLPAs by loan attribute. The modernized matrix supports pricing model durability through market cycles and conditions.”
FHFA Director Sandra Thompson said the new framework comes as a result of months-long analysis and stakeholder engagement by the FHFA to consider a variety of views on the fee and its potential impacts on the Uniform Mortgage-Backed Security (UMBS) market.
“FHFA is dedicated to preserving the strength and resilience of the UMBS market, given the significant improvement in liquidity and stability that UMBS has afforded the To-Be-Announced (TBA) market,” Thompson said. “To support these objectives, FHFA is committed to maintaining a durable framework that will enable commingling activity to resume in a way that addresses the concerns of all stakeholders to the greatest extent possible.
“As FHFA continues its review of the Enterprise Regulatory Capital Framework (ERCF) to ensure the ERCF appropriately reflects the risks of the Enterprises’ business activities including commingled securities, the agency appreciates the constructive engagement with all market participants and is committed to ongoing dialogue on this issue,” she added.
National Association of Realtors (NAR) President Kenny Parcell said his organization appreciated the agency’s efforts to revise the structure for loan level pricing adjustments as well as making the 2022 changes permanent.
“NAR and our members were supportive of most of the changes made to LLPAs this past fall, and we will continue to advocate for LLPA reform as the housing market continues to struggle with the sharpest blow to affordability in decades,” he said.
Parcell added these changes make permanent the reduced or eliminated fees for first-time homebuyers and those with low or moderate incomes. They also reduce fees for many borrowers with lower credit scores, but strong down payments.
However, he cautioned, fees are raised on some borrowers with good credit scores and moderate down payments, hitting middle-wealth homebuyers. Additionally, FHFA included new fees on borrowers with higher debt-to-income scores. Parcell said NAR will review other changes in the new LLPA structure and share its concerns with the agency.
“In the wake of a three-percentage point increase in mortgage rates, now is not the time to raise fees on homebuyers,” he concluded. “Furthermore, the FHFA needs to address its recent increase in fees on homebuyers in high-cost markets as well as guarantee fees that impact all homebuyers. Homebuyers are hurting and these changes are overdue. Now is the time.”
Bob Broeksmit, Mortgage Bankers Association (MBA) president and CEO, said while his organization continues to believe there should not be any fee for commingled securities, it appreciated FHFA’s receptiveness to the industry’s feedback and willingness to make adjustments.
“FHFA’s move to lower the fee significantly for commingled securities is a sound decision and should remove much of the friction observed in the UMBS market since the fee was implemented last summer,” he said. “The UMBS is intended to increase liquidity in the market, but the high fee was having the opposite effect…. [MBA] remain[s] focused on ensuring a well-functioning UMBS market and will continue to work with FHFA, the GSEs, and industry stakeholders on this issue.”