FHFA rescinds “unworkable” fee ahead of implementation 

by John Yellig

After repeated complaints from members of the residential mortgage industry, the Federal Housing Finance Agency announced it would rescind a planned loan-level pricing adjustment (LLPA) for conventional borrowers with elevated debt-to-income (DTI) ratios. 

Implementation of the DTI ratio-based fee, which was postponed from May 1 to Aug. 1 after industry pushback, would have affected borrowers with DTI at or above 40%. Stakeholders, including the Mortgage Bankers Association and the National Association of REALTORS®, argued that the fee was “unworkable” and would sow mistrust from borrowers.  

“I appreciate the feedback FHFA has received from the mortgage industry and other market participants about the challenges of implementing the DTI ratio-based fee,” FHFA Director Sandra Thompson said in a May 10 statement. “To continue this valuable dialogue, FHFA will provide additional transparency on the process for setting [Fannie Mae’s and Freddie Mac’s] single-family guarantee fees and will request public input on this issue.” 

Under the proposal, lenders argued, determining a borrower’s income before rates were locked would be too difficult, as the timeline would not allow banks to adjust loan terms if new information became available during the underwriting process, which is a common occurrence.  

“We applaud the FHFA for listening to the industry’s concerns by choosing to drop this fee on borrowers with higher debt-to-income ratios,” NAR President Kenny Parcell said in a press release. “It would have imposed a cost on borrowers at a time in the market when affordability is already stretched and only made them riskier.” 

The FHFA said it would provide additional details about its upcoming request for input on its single-family guarantee fee-pricing framework shortly.  

“The proposed fee was unworkable for lenders and would have confused borrowers and undermined the customer experience,” MBA President and CEO Bob Broeksmit said in a statement. “We are pleased that FHFA engaged with industry stakeholders, recognized the negative impacts of the fee and decided to rescind its implementation.”   

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