You have probably heard in the media that effective May 1st, FHFA (Fannie Mae and Freddie Mac’s supervisory entity) issued new loan level pricing adjustments for conventional home loans. The fees paid by borrowers with lower down payments and credit scores have been reduced with these changes, while some borrowers with higher down payments and credit scores are paying higher fees. Mortgage loan applicants with worse credit scores and lower down payments still have overall higher loan price adjustments than those with better credit scores and higher down payments, but the spread is now narrower.
In general, the loan level price adjusters are utilized to offset higher risk. This new approach is defended by FHFA’s Acting Director Sandra L. Thompson, as follows (FHFA Announcement): “By locking in the upfront fee eliminations announced last October, FHFA is taking another step to ensure that the Enterprises advance their mission of facilitating equitable and sustainable access to homeownership.” Some perceive this approach as charging lower risk borrowers, to offset higher risk borrowers. FHFA released another announcement to address these concerns: FHFA Setting the Record Straight…
Below and at the following link is a before and after comparison of the pricing adjustments along with a more detailed explanation of the fee changes (from Mortgage News Daily).