A person hands over a wad of $100 bills to another person.

FHFA decides to scrap new debt-to-income ratio fees 

The fees, which were scheduled to go into effect on Aug. 1, were opposed by industry groups including NAR and the Mortgage Bankers Association.

May 10, 2023
2 minutes

Key points:

  • NAR and other real estate organizations said the fees would have imposed a higher burden on borrowers already dealing with affordability challenges.
  • Requiring higher credit scores or larger down payments would be a better way to offset borrower risk, said NAR.
  • The government will continue to look at lending policies as it gathers more feedback from the industry.

The real estate industry reacted with relief to the federal government's announcement that it has decided, at least for now, not to impose upfront fees that were scheduled to go into effect this summer.

The Federal Housing Finance Agency (FHFA) announced on May 10 that it is rescinding the fees that would have been based on a borrower's debt-to-income ratio for loans that were above 40% and acquired by Fannie Mae and Freddie Mac.

The upfront fee change was originally scheduled to start on May 1 but was delayed until August 1 as the agency sought feedback. The decision to scrap these fees does not impact the non-debt-to-income ratio mortgage fee changes that went into effect on May 1.

Kenny Parcell, president of the National Association of Realtors, said the fees would have hurt homebuyers.

"It would have imposed a cost on borrowers at a time in the market when affordability is already stretched and only made them riskier," Parcell said.

NAR previously urged the FHFA to require factors such as higher credit scores or larger down payments to offset this risk in lieu of higher fees because those fees would only raise the borrower's risk of default.

The Mortgage Bankers Association strongly opposed the fees, said Bob Broeksmit, president and CEO of the organization.

"The proposed fee was unworkable for lenders and would have confused borrowers and undermined the customer experience," Broeksmit said.

The FHFA plans to provide additional transparency in the process and will request more public feedback as it continues to rework the debt-to-income fees, said Director Sandra Thompson, who noted the goal is ensuring that Freddie Mac and Fannie Mae are well positioned to meet their mandate of providing liquidity and stability to the secondary mortgage market.

Parcell is also pleased that the FHFA is open to feedback, noting NAR has worked with the agency on these specific fee issues, known as Loan Level Pricing Adjustment, since their inception in 2008.

"We look forward to a thoughtful and deliberate process for the public, industry, and the regulators to clarify misconceptions and to arrive at the best policy for home buyers and the market," Parcell said.

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