Some of our real estate clients have inquired about potential updates or even a new mortgage fee structure for 2024, similar to the changes we saw in 2023. We are here to report that the conditions will continue as they were in 2023. For the benefit of our readers, we are re-sharing our 2023 blog post which detailed those changes:
In May 2023, the housing market experienced a significant shift due to the introduction of a new mortgage fee structure by the Federal Housing Finance Agency (FHFA). This change, impacting conventional mortgages backed by Fannie Mae and Freddie Mac, realigned the costs associated with acquiring a home loan. Under this new system, the loan-level price adjustments (LLPAs) were updated, affecting borrowers differently based on their credit scores and down payment amounts.
While some homebuyers benefited from reduced fees, others saw an increase in their mortgage costs. This move sparked a mix of reactions from industry leaders and borrowers alike, with concerns about affordability and compliance being voiced. As we get into the details of this new structure, it’s clear that the landscape of home financing is about to change, posing both challenges and opportunities for prospective homeowners.
- Borrowers getting a conventional mortgage were subject to a new pricing structure that started May 1.
- Made mortgages cheaper for some and pricier for others.
- Industry leaders pushed back against these new rules, citing both affordability issues for borrowers and compliance concerns for lenders.
- Fees dropped for some borrowers making lower down payments while others rose for those putting more money down.
Starting May 1, 2023, some borrowers paid more for their mortgages thanks to a new rule from the Federal Housing Finance Agency regarding loan-level price adjustments, or LLPAs.
These new mortgage fee structure changes updated the current fee structure on most loans originating from mortgage lenders in the US.
Loan-Level Price Adjustments Explained
Loan-level price adjustments (LLPAs) are upfront fees that the government-sponsored enterprises Fannie Mae and Freddie Mac charge on the loans they purchase. These fees are taken as a percentage of the loan amount and vary based on the borrower’s credit score, down payment, and other loan features.
Most borrowers pay LLPAs in the form of a higher mortgage rate, with riskier borrowers paying more than those with high credit scores and large down payments.
The Pricing Structure of Mortgage Rates
May 1 was the official implementation date for the FHFA’s new LLPAs, with many lenders using the new pricing structure ahead of that date.
The changes impacted any borrower getting a conventional mortgage backed by Fannie Mae or Freddie Mac. Government-backed loans (like FHA mortgages), jumbo loans, and other non-conforming loans are not impacted.
Exactly how much you pay under the new pricing structure depends on your credit score and how much you put down.
In many cases, borrowers are charged higher fees than they previously would have paid. A borrower with a 700-credit score and a 20% down payment previously would have paid an upfront fee equal to 1.25% of the loan amount — $3,750 on a $300,000 loan. Their fee has been raised to 1.375%, or a total of $4,125, on a $300,000 loan.
Some borrowers stand to benefit from this change thanks to a reduction in their fees.
For example, a borrower with a credit score of 780 or higher who puts 3% down now pays a fee equal to 0.125% of their loan amount. Before these fee changes, that same borrower would be charged a fee equal to 0.75% of the loan amount. On a $300,000 loan, that’s the difference between a $375 fee and a $2,250 fee!
You can see the entire new LLPA tables for 2023 on Fannie Mae’s website. The old tables are no longer used as of May 1, 2023.
Not everyone is thrilled about the new pricing structure. In a statement, the National Association of Realtors asked the FHFA to walk back these changes. “NAR continues to urge FHFA to rescind this unnecessary measure given their current financial strength and the affordability concerns plaguing homebuyers nationwide,” the statement said.
Regarding Borrowers with A Higher Credit Score
Some have argued that the FHFA uses fees charged to borrowers with high credit scores to subsidize lower fees for those with poor credit. FHFA Director Sandra Thompson released a statement calling this a “fundamental misunderstanding” of the fees and why these changes were made.
“Higher-credit-score borrowers are not being charged more so that lower-credit-score borrowers can pay less,” Thompson said. “The updated fees, as was true of the prior fees, generally increase as credit scores decrease for any given level of down payment.”
While fees have generally been reduced for borrowers with lower scores compared to the old fee structure, those with low scores will still pay higher fees than those with higher scores.
Thompson argues that it was due for an update because it’s been a while since the pricing structure has been reviewed. The new structure, she says, “will now be better aligned with the expected long-term financial performance of those mortgages relative to their risks.”
In some cases, borrowers with high scores and large down payments may pay more fees than borrowers with high scores and lower down payments. But as Thompson notes, borrowers with low down payments will also have to pay for private mortgage insurance, raising their overall costs.
The DTI Fee Change Was Scrapped in 2023
Another new mortgage fee structure change was set to go into effect on August 1, 2023 but it was ultimately rescinded following pushback from the mortgage industry. This change would have added an upfront fee for some borrowers with a debt-to-income ratio (DTI) above 40%. DTI refers to the relationship between how much a person earns and how much they pay toward debts each month.
The FHFA announced on May 10, 2023 that the fee change had been rescinded. Many industry leaders had spoken out against this particular fee, urging the FHFA to reconsider.
Because a borrower’s DTI can fluctuate throughout the mortgage approval process, the scrapped DTI fee could have caused the pricing or rate a borrower was given to change during this time. This would have created compliance concerns for the lender and potentially delayed the closing process.
Questions? Contact our team of real estate experts. We’re here to keep you updated on developments in the real estate market such as new mortgage fee structures, as well as to provide the best real estate services possible to our clients across Northeast Ohio. We look forward to helping you find your dream home! You can also contact our partners at CrossCountry Mortgage and speak to Jeanne Monreal for information on these important topics.
Our Mission at The Katie McNeill Team is to provide “Excellence in Real Estate Services” to all of our customers and clients by conducting all of our business with the highest levels of professionalism, honesty, and integrity. Thanks for reading!
