Real Estate, Lending Industries Praise Decision To Rescind Upfront Fees Based on DTI Ratio
Real Estate In-Depth | May 11, 2023
WASHINGTON—The Federal Housing Finance Agency announced on May 10 that it had rescinded the upfront fees based on borrowers’ Debt to Income (DTI) ratios for loans acquired by Fannie Mae and Freddie Mac.
FHFA had announced in March it would delay implementation in order to engage with industry stakeholders and better understand their concerns.
“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,” said FHFA Director Sandra L. Thompson. “To continue this valuable dialogue, FHFA will provide additional transparency on the process for setting the Enterprises’ single-family guarantee fees and will request public input on this issue.”
The reaction to the FHFA’s recission decision was positive from real estate and lending trade organizations.
National Association of Realtors President Kenny Parcell stated, “We are pleased that our advocacy efforts on behalf of our 1.5 million members and their clients were successful. 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. It would have imposed a cost on borrowers at a time in the market when affordability is already stretched and only made them riskier.
He added, “Likewise, the FHFA’s decision to release a request for information on the other changes is a great example of good governance. NAR has worked with the FHFA to shape the LLPAs 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.”
NAR previously wrote the FHFA urging it to require factors such as higher credit scores or larger down payments to offset this risk in lieu of higher fees that would only raise the borrower’s risk of default. The FHFA also announced that it will conduct a request for information on other new fees, such as those imposed on borrowers with higher credit scores and moderate down payments.
David M. Dworkin, President and CEO of the National Housing Conference also praised the FHFA for its recission decision. “Today’s decision by the Federal Housing Finance Agency to rescind fees based on a borrowers’ Debt-to-Income ratio for loans acquired by Fannie Mae and Freddie Mac will help well-qualified first-time homebuyers whose total debt load approaches the 40% ratio. Borrowers who have proven adept at managing their obligations do not pose additional risk due to a few points on a DTI ratio. In fact, many will save money by becoming homeowners in areas where rents are high. The DTI-based fees would have been confusing to borrowers and extremely difficult for lenders to implement.”
He added that the NHC is also very supportive of the upcoming Request for Information on loan pricing. He said, “The RFI process is essential to examine a widely misunderstood and highly technical risk-based pricing grid that needs thoughtful review. This is not an issue that can be addressed in talking points, sound bites or editorials.”
Bob Broeksmit, CMB, President and CEO of the Mortgage Bankers Association, stated, “We have strongly opposed FHFA’s planned debt-to-income loan level pricing adjustment since it was announced in January and have led advocacy efforts calling for its removal. The proposed fee was unworkable for lenders and would have confused borrowers and undermined the customer experience. We are pleased that FHFA engaged with industry stakeholders, recognized the negative impacts of the fee, and decided to rescind its implementation.
Broeksmit concluded his statement by saying, “MBA urges FHFA to continue its engagement to improve clarity and transparency regarding the GSEs’ pricing framework. We will continue our work with the agency, the GSEs, lawmakers, and the Biden administration on policies and actions that lower costs and advance sustainable access to homeownership while protecting taxpayers.”