Reversal on plan to increase loan fees

The Federal Government has backed down on its plan to restructure loan fees to help buyers with lower credit scores.

The Federal Housing Finance Agency has rescinded its plans to apply a new upfront fee on borrowers as part of the established Loan Level Pricing Adjustment (LLPA) charged by Fannie Mae and Freddie Mac.

The LLPA, established in 2008, is charged by Fannie Mae and Freddie Mac based on a homebuyer’s credit score and the size of a down payment. It’s not well known because the fee is often part of the closing costs.

The dumped fee, a percentage of a property transaction, was designed to help those with lower credit scores who struggled to purchase their first home. 

The plan was to hit the market on August 1 and benefit borrowers with debt-to-income ratios greater than 40%.

Revenue from the new fee structure would have been allocated to reduce their closing costs.

An initiative that would see borrowers in good financial shape hit with a higher fee was always going to be controversial with interest rates continuing to head north as America tries to beat down its rising inflation curve.

Industry leaders said buyers with high credit scores would be underwriting the fees incurred by those with low credit scores.

President of the National Association of Realtors, Kenny Parcell, said after the Government reversed its decision that the fee “would have imposed a cost on borrowers at a time in the market when affordability is already stretched and only made them riskier”.

Earlier, 27 state governments formed a loose coalition to persuade the Biden administration and the Federal Housing Finance Agency (FHFA) to reverse its position.