Beginning May 1, some Americans will see higher fees on their mortgages while others will see fees reduced or eliminated. These changes to the so-called loan-level price adjustments—or LLPAs—have caused consternation in the industry. And in the week leading up to their effective date, National Association of REALTORS® advocacy staff have been busy both clearing up misunderstandings and reassuring REALTORS® that their concerns are being heard.
LLPAs aren’t new. These borrower-specific fees were instituted in 2008, on top of the base guarantee fee that borrowers pay. Over the years, there have been multiple changes to LLPAs, and the National Association of REALTORS® has regularly lobbied against adverse impacts on borrowers, including on these latest changes. According to an analysis by Experian, the latest LLPA changes will result in higher fees for consumers doing cash-out refinances and those with high-balance adjustable-rate mortgage. Mortgage News Daily reports that most borrowers who put down between 5% and 25% and have credit scores greater than 680 will also see a fee increase but will still pay less overall than lower credit borrowers. (In the article, author Matthew Graham provides a handy chart that shows how LLPAs are applied based on FICO score and LTV.) In addition, 2022 changes that reduced or eliminated fees for first-time homebuyers and those with low or moderate incomes will become permanent. And many borrowers with lower credit scores but strong down payments will see reduced fees.
Critics have said the changes amount to a penalty for those who have maintained high credit scores. However, at a housing policy forum hosted by NAR in April, FHFA Director Sandra Thompson indicated that “there was no uniform targeting of a borrower with a higher LTV for a lower.” While supporting some of the changes, NAR has consistently said that Fannie Mae and Freddie Mac have the wherewithal to lower fees for lower-wealth borrowers without increasing fees for those with greater wealth. Furthermore, supporting both groups dovetails with their congressional charter obligations and their function as market utilities.
However, some of the criticism of the new LLPAs has mischaracterized the changes, according to NAR. For example, one commentary said the changes amounted to “leveraging high-risk loans to people without the ability to pay them” and compared the changes to policies that led to the 2008 financial crisis. “That's not accurate,” says Ken Fears, NAR director of conventional housing finance and valuation policy. “Every loan financed by the GSEs must comply with the Ability to Repay Rule, put into effect after the financial crisis, which requires that borrowers be able to afford the payments for the first five years based on their income,” he says. Furthermore, while some fees will change, the fees paid by lower-credit borrowers will still remain higher than those of borrowers with stronger credit.
When FHFA announced the changes in January, NAR released a statement saying it supported adjustments that reduced costs for some borrowers but had concerns about increases for other borrowers. “In the wake of a three-percentage point increase in mortgage rates, now is not the time to raise fees on homebuyers,” NAR President Kenny Parcell said in the statement.
NAR Chief Advocacy Officer Shannon McGahn says the association will continue to make its voice heard on the issue of mortgage fees. REALTORS® will be meeting with Washington legislators and policymakers during the May 9 REALTORS® National Block Party at Nationals Park. The block party, part of the REALTORS® Legislative Meetings, will also be the national stop of NAR's Riding with the Brand tour.