MBA, Trade Groups Ask FHFA to Reduce or Eliminate Loan-Level Price Adjustments
The Mortgage Bankers Association and more than two dozen industry and consumer trade groups, in a letter to Federal Housing Finance Agency Director Melvin Watt, urged FHFA to reduce or eliminate loan-level price adjustments charged by Fannie Mae and Freddie Mac, arguing that they are “double-charging” consumers for risk that is already being assumed by existing guaranty fees.
“The framework used to set g-fees and LLPAs should be transparent,” the letter said. “The combination of g-fees that have more than doubled since 2011 and the market impact of LLPAs have effectively resulted in many qualified borrowers being priced away from the conforming loan market, undermining the Enterprises’ public mission. The credit pricing framework should not be based on maximizing income to the GSEs, or funding non-housing related government expenditures. Rather, it should provide access to credit for a broad range of borrowers, and promote a ‘liquid and efficient national housing market,’ while maintaining the safety and solvency of the GSEs.”
The government-sponsored enterprises’ credit pricing includes LLPAs and ongoing g-fees, the former of which are paid at the time the loan is delivered to the GSEs. The cost of LLPAs and g-fees are ultimately borne by borrowers as part of their up-front closing costs and/or as part of their ongoing monthly payments. LLPAs were introduced in 2008 and can vary greatly based on loan terms including borrowers’ credit scores, loan-to-value ratios and other risk factors. LLPAs can total up to 4.0 percent of the loan value for some borrowers.
The letter pointed out, however, that since 2008, a number of developments have both increased mortgage credit quality and reduced GSE risk exposure, including:
–Rigorous mortgage underwriting and fully documented mortgage files.
–Enhanced mortgage insurer reliability.
–Improved industry standards and regulation.In addition, the letter noted, g-fees have increased sharply since 2009 and, combined with LLPAs, have resulted in substantial gains in the GSEs’ income, without achieving broad access to credit despite the unprecedented liquidity provided by the U.S. Treasury Department and Federal Reserve to Fannie Mae and Freddie Mac.
“No borrower should face arbitrarily high prices for mortgage credit, especially when the burden is felt particularly hard by low- and moderate-income and first-time homebuyers,” the letter said. “We therefore request that FHFA direct the GSEs to reduce or eliminate LLPAs going forward. Eight years after the financial crisis, mortgage credit quality has improved dramatically and regulations have improved the industries risk management practices. We believe these changes justify eliminating LLPAs.”
Joining MBA in the letter: America’s Homeowner Alliance; American Bankers Association; American Escrow Association; American Land Title Association; Asian Real Estate Association of America; Center for Responsible Lending; Community Association Institute; Consumer Federation of America; Consumer Mortgage Coalition; Credit Union National Association; Enterprise Community Partners; Habitat for Humanity International; Mortgage Bankers Association; NAACP; National Association of Federal Credit Unions; National Association of Hispanic Real Estate Professionals; National Association of Home Builders; National Association of Real Estate Brokers; National Association of Realtors; National Council of La Raza; National Fair Housing Alliance; National Housing Conference; Real Estate Settlement Procedures Council; The Realty Alliance; and U.S. Mortgage Insurers.
