A woman signs a mortgage document.

Mortgage fee changes raise costs for some, lower costs for others 

The new mortgage fee structure is an attempt by the FHFA to create "equitable and sustainable access to homeownership."

May 1, 2023
4 minutes

Key points:

  • Some with lower credit scores will see penalty fees decrease, but while those who make large down payments may get hit with fee increases, others could see fees drop or remain flat.
  • The new fee structure will take multiple risk factors into account, and will not affect loan qualification requirements.
  • Inventory shortages and a lack of affordable housing are more pressing issues, says Zillow economist Orphe Divounguy.

Mortgage fees are changing, leading some to voice concerns about fairness, but the FHFA asserts the new rules will create a more level playing field for buyers.

In January, the Federal Housing Finance Agency announced changes for fees on mortgages backed by Freddie Mac or Fannie Mae, which make up the majority of home loans in the U.S. Those changes are scheduled to take effect on Monday, May 1.

Ahead of the policy changes, reports have surfaced making dubious claims about their potential impacts, said FHFA Director Sandra Thompson, who released a statement on Apr. 25 to "set the record straight." One of the biggest misconceptions, she said, is that those with higher credit scores will be charged more, while those with lower credit scores will be charged less.

In actuality, "Some updated fees are higher and some are lower, in differing amounts," Thompson said in the statement. "They do not represent pure decreases for high-risk borrowers or pure increases for low-risk borrowers. Many borrowers with high credit scores or large down payments will see their fees decrease or remain flat."

Fee changes take multiple risk factors into account

While those with lower incomes could see a decrease in penalty fees, Thompson said that determination will be based on risk in order to increase the safety and soundness of Freddie Mac and Fannie Mae. The other goal is to create "equitable and sustainable access to homeownership," according to the FHFA announcement.

Risk factors include not just credit scores, but also the type of property being purchased and the size of the borrower's down payment.

What is important to note is that this will not change who qualifies for a mortgage, said Orphe Divounguy, senior economist at Zillow Home Loans. Lending standards remain fairly strict, with the median credit score around 711 at the end of 2022.

"Potential homebuyers still have an incentive to get their credit in as good of shape as possible because a higher credit score will result in a lower monthly payment," Divounguy said.

Fees will increase for some borrowers with higher credit scores

In some cases, fees will increase for borrowers with higher credit scores, which has led to criticism of the policy changes. 

A recent CNN article provides an example of such a scenario. When the changes take effect, a buyer who makes a 20% down payment with a credit score of 640 would see their fee drop from 3% to 2.25%. For someone who also pays a 20% down payment but has a credit score of 740, the fee would climb from 0.5% to 0.875%.

While fees are still significantly higher for those with lower credit scores, the effective penalty for scores under 680 is now smaller than it was, said Realtor.com economist Jiayi Xu. To offset this, borrowers with scores ranging from 680 to above 780 will likely have to pay slightly more than they did under the previous system, raising concerns about the impact on middle-class home buyers. 

"The new policy could exacerbate the challenges faced by well-qualified buyers, many of whom are repeat buyers," Xu said.

Fee changes 'pale in comparison' to tighter credit

Divounguy, however, expects the impact of the updated mortgage fee policies to be relatively small.

"Overall, the impact of these fee changes pale in comparison to the impact of tighter credit on mortgage markets," Divounguy said.

While this attempt to level the playing field might help, Divounguy said the bigger issue remains the shortage of affordable housing.

"That means working with local governments to address antiquated zoning laws and reduce the time it takes to approve things like new building permits," Divounguy said. "Policymakers should also pursue policies that can help more people become ready to purchase a home by reforming and expanding how someone can build a strong credit profile."

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