Back in January, the FHFA (Federal Housing Finance Agency) shared news about a series of changes to LLPA (loan-level pricing adjustment) fees.
These changes included a revamped LLPA matrix that differentiated pricing by loan purpose and a whopping 81 grids for purchase loans, limited cash-out refi loans, and cash-out refinance loans.
The proposed move has recently generated quite a buzz on social media, and some industry groups such as the National Association of Realtors and the MBA raised concerns about the potential impact on middle-wealth homebuyers and overall pricing.
However, according to a release from HousingWire.com, the FHFA has announced that it will cancel the controversial pricing adjustment for conventional borrowers with debt-to-income levels at or above 40%.
The LLPA fee was first implemented in 2008 as a way to protect the FHA’s insurance fund from losses. However, the fee has been criticized by some as being unfair to borrowers with lower credit scores or higher debt-to-income ratios. These borrowers are already at a disadvantage when it comes to qualifying for a mortgage, and the LLPA fee can make it even more difficult.
The FHFA had previously delayed implementation of the DTI LLPA from May 1, 2023, to August 1, 2023, following objections from the mortgage industry. Mortgage industry practitioners had complained that the fee would result in confusion and mistrust from borrowers.
The FHFA has put out a request for information on other new fees, including those imposed on borrowers with higher credit scores and moderate down payments. The announcement has been welcomed by industry groups, including the influential Mortgage Bankers Association and the National Association of Realtors, who said it would have resulted in an added cost to borrowers and only made them riskier.
The removal of the LLPA fee is a positive development for homebuyers. It will make it easier for more people to qualify for an FHA mortgage and purchase a home. The FHA insures more than 1 in 5 mortgages in the United States, so the removal of the LLPA fee is expected to have a positive impact on the housing market.
