Fannie Mae and Freddie Mac Loan Changes
You may have heard about the change in upfront fees paid for Fannie Mae and Freddie Mac loans and have questions about them. There’s a bit of misinformation circulating about them as well, so let’s clear things up a bit.
The Federal Housing Finance Agency (FHFA), which oversees Fannie Mae and Freddie Mac, announced in January that it would modify the loan level pricing adjustments (LLPAs) for mortgages with settlement dates on or after May 1, 2023. LLPAs are risk-based fees, mandated by the government, that are assessed to mortgage borrowers using a conventional mortgage.
Let’s Dive into the Numbers
The adjustments affect borrowers differently depending on the details of their credit score and their loan-to-value (LTV) ratio, which describes the amount of a loan relative to the value of the property. The changes may cause the fees for super-prime borrowers—those with credit scores of 720 or above—to increase by up to 0.750%. Fees for some prime borrowers—scores of 680-719—or near-prime borrowers—scores of 679-659—may decrease by up to 1.750%. Fees may also decrease for borrowers with higher LTV ratios.
It is important to note that all affected borrowers are creditworthy and can qualify for a conventional mortgage and that higher-credit-score borrowers will continue to pay fewer LLPAs in comparison to those with lower scores.
For example, prior to this change, a borrower with a 740 credit score and a 20% down payment on a $400,000 home would have paid approximately $2,000 in upfront fees. In contrast, a homebuyer with a credit score of 640 and 3% down would have paid $11,000 in fees for the same mortgage. With this new LLPA matrix, the high-score borrower’s fees increase to $3,500, and the lower-score borrower’s fees decrease to $6,000.
What That Means for Borrowers
The FHFA wants to clarify that higher-credit-score borrowers are not being charged more so that lower-credit-score borrowers can pay less. These are not pure increases for high-score borrowers and pure decreases for low-score borrowers. Many borrowers with higher credit scores or large down payments may see their fees decrease or remain flat.
Also, the adjustments do not provide incentives for a borrower to make a lower down payment so that they can benefit from lower fees. Borrowers making a down payment smaller than 20 percent of the home’s value typically pay private mortgage insurance (PMI) premiums, so these must be added to the fees when calculating a borrower’s total costs.
Learn More With White River Credit Union
If you’re interested in learning more about Freddie Mac and Fannie Mae mortgages and how these fee adjustments may make it easier for you to buy a home, please contact one of our loan officers at 360-825-4833 Ext 4 or set up an appointment.