New mortgage fees generate pushback
Jun. 25—Anyone who's ever bought a house can say that the fees are where they get you.
Some aren't getting on board with a new federal rule that appears to shift the burden of some mortgage fees from high-risk to low-risk borrowers. The revamped rule took effect on May 1.
Changes to what's known as the Federal Housing Finance Agency loan-level pricing adjustment structure sparked a chorus of criticism from Republican lawmakers. In Missouri, Gov. Mike Parson signed an open letter asking the Biden administration to rescind the new rule.
"This backward policy only serves to punish hard-working Americans who follow good financial practices," Parson said in a statement. "Only the Biden administration would think it can solve a supply issue by subsidizing demand and bad credit."
Fannie Mae and Freddie Mac, two leading providers of mortgage financing, typically impose higher fees on borrowers who are more likely to default based on factors like down payments and credit scores. The fees are converted into percentage points that increase a buyer's mortgage rate. They usually range from 0.125% to 2.875%,
The new rule does not automatically raise fees for those with high credit scores at the expense of those with poor credit, a claim that some critics have made. But the updated fee structure does provide more of a break to those with low down payments regardless of the credit score, upending the traditional framework of treating buyers as less risky if they put more money down. Those with lower down payments would still be subject to mortgage insurance premiums.
An analysis from the Mortgage Bankers Association found that some borrowers with higher credit scores and down payments could see a fee increase between 5 and 25 basis points (0.05% to 0.25%) under changes.
The outcry was enough that FHFA director Sandra L. Thompson issued a statement attempting to clarify the changes. She said the goal was to help low-income borrowers, not borrowers with low credit scores.
"Higher-credit-score borrowers are not being charged more so that lower-credit borrowers can pay less," she said. "Some updated fees are higher and some are lower, in differing amounts. They do not represent pure decreases for high-risk borrowers or pure increases for low-risk borrowers."
U.S. Sen. Josh Hawley thinks Congress should step in and overturn the rule. "I don't understand it at all," he said. "It really disfavors and punishes middle-class borrowers, people who have decent credit and want to save up and buy a home."
Dennis Lykins, branch manager of Open Mortgage in St. Joseph, said home loans are rarely one-size-fits-all. While low down payments often are seen as riskier, he does lots of Federal Housing Administration loans because they don't require as much of a down payment for first-time homebuyers.
"It's really tough to put your thumb on it," he said. "It used to be if you applied for a loan, it was yes or no. Everybody got the same terms. In the past 20 years pricing has been so involved with credit scores. I'm for anything that will help anybody."
Greg Kozol can be reached at greg.kozol@newspressnow.com. Follow him on Twitter: @NPNowKozol.
