“Homebuyers with good credit scores will soon encounter a costly surprise: a new federal rule forcing them to pay higher mortgage rates and fees to subsidize people with riskier credit ratings who are also in the market to buy houses,” reports the Washington Times.
The fees will go into effect May 1 as part of the Federal Housing Finance Agency’s push for “affordable housing,” and they will affect mortgages issued by private banks across the nation. The federally backed home mortgage companies Fannie Mae and Freddie Mac will implement the loan-level price adjustments, or LLPAs.
Mortgage industry experts say homebuyers with credit scores of 680 or higher will pay around $40 per month more on a home loan of $400,000. Homebuyers who make down payments of 15% to 20% will be hit with the largest fees under the new rule. The new fees will apply only to people buying houses or refinancing after May 1.
“Lenders and real estate agents say the changes will frustrate homebuyers with high credit scores and homeowners seeking to refinance because the rule punishes them for their relatively strong financial positions,” reports The Times:
“The changes do not make sense. Penalizing borrowers with larger down payments and credit scores will not go over well,” Ian Wright, a senior loan officer at Bay Equity Home Loans in the San Francisco Bay Area, told The Washington Times in an email message. “It overcomplicates things for consumers during a process that can already feel overwhelming with the amount of paperwork, jargon, etc. Confusing the borrower is never a good thing.”
He said the rule will “cause customer-service issues for lenders and individual loan officers when a consumer won’t understand why their interest rate and fees suddenly changed.”
“I am all for the first-time buyer having a chance to get into the market, but it’s clear these decisions aren’t being made by folks that understand the entire mortgage process,” Mr. Wright said.
The new fees “will create extreme confusion as we enter the traditional spring home purchase season,” said David Stevens, a former head of the Mortgage Bankers Association who served as commissioner of the Federal Housing Administration during the Obama administration.
“This confusing approach won’t work and more importantly couldn’t come at a worse time for an industry struggling to get back on its feet after these past 12 months,” Mr. Stevens wrote in a recent social media post. “To do this at the onset of the spring market is almost offensive to the market, consumers, and lenders.”
Government-supported housing companies Federal National Mortgage Association (Fannie Mae) and Federal Home Loan Mortgage Corporation (Freddie Mac) will oversee the price adjustments.
