Compliance Blog

Written by Brandy Bruyere, Regulatory Compliance Counsel

Last week, in response to a directive from the Federal Housing Finance Agency, Fannie Mae and Freddie Mac announced increases to loan guarantee fees for all maturities and loan-level price adjustments for single-family loans with original maturities greater than 15 years. FHFA believes this will meet the conservatorship goal of “gradually contracting Freddie Mac and Fannie Mae’s dominant presence in the marketplace.” Here are the basic details of these releases:

• The base g-fee for all mortgages will increase by 10 basis points;
• Upfront fees in the Loan-level Price Adjustment (LLPA) matrices will be adjusted to “better align pricing with credit risk” (Fannie Mae announcement; Freddie Mac announcement);
• The adverse market fee of 25 basis points that has been assessed on all of Fannie and Freddie’s mortgages since 2008 is being eliminated except in four states with higher than average foreclosure costs (New York, New Jersey, Connecticut, and Florida);

The FHFA expects the combination of fee changes to result in an average increase of 14 basis points for the typical 30 year mortgage. According to some in the mortgage lending industry, this will result in additional costs for borrowers, particularly because loan fee increases are typically passed along to borrowers through higher interest rates. To put this in perspective, an increase of just 10 basis points costs a borrower about $4,000 over the life of a 30 year, $200,000 mortgage. Also, the new LLPA fees will significantly increase initial costs for borrowers, even those with good credit scores.

In response, NAFCU’s President and CEO Dan Berger sent a letter to FHFA Acting Director Edward DeMarco about the negative impacts of these changes on credit unions and their members:

“NAFCU does not believe that these actions are appropriate because the cost of borrowing will greatly increase and lending will inevitably slow down. While we recognize that the housing market is recovering, it is important that the FHFA considers that there are many indicators showing a slowdown in the recovery. For example, applications for purchase transactions have decreased by 10 percent from the 3^rd quarter in 2012 to the same time this year. During the same period, lenders have seen over 50 percent fewer mortgage applications, including refinancings. Further, and crucially, many lenders, including a vast majority of NAFCU member credit unions, do not plan to extend mortgages that do not meet the definition of ‘qualified mortgage.’” 

NAFCU is closely monitoring this issue.  The FHFA will soon have a new director, current Representative Mel Watt, after he is sworn in. He would replace Acting Director Edward DeMarco.

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After that news, I’m sure everyone could appreciate a pick me up, so I’ll introduce you to my 130 pound lovable American Mastiff, Lemmy—would you believe he’s a runt? As you can see, like all of us at NAFCU, he wishes you a safe and happy holiday!