Exclusive: FHFA Interview on LLPA Changes

In January Federal Housing Finance Agency (FHFA) has made a series of significant changes to the Loan Level Price Adjustment (LLPA) fees charged by fannie mae and freddie mac For conventional/compliant mortgages. It went largely unnoticed at the time, but eventually caused an uproar among consumers, the mortgage industry, and even some legislators.

Ultimately, FHFA Director Sandra Thompson issued a statement addressing what the agency deemed misinformation.

Friday, Chief Advisor Michael Schemi of FHFAs The Department of Housing and Mission Goals sat down for an exclusive interview with HW Media Editor-in-Chief Sarah Wheeler on the HousingWire Daily podcast to discuss the changes.

FHFA response to response

“The pricing changes the FHFA has made since 2020 are aimed at improving our ability to reach capital adequacy to meet updated capital requirements and prevent potential future taxpayer-funded relief. “And the pricing changes are intended to help Fanny and Freddie continue to support homeownership nationwide in a way that is consistent with their charter and in a safe and sound manner,” Shemi said in an interview. It provides a solid foundation for

As for the vocal reaction to the LLPA rule change, Shemi said the criticism about the FHFA’s supposed purpose was “wrong,” but said much of the criticism was rooted in an outdated grid that needed to be reviewed. said.

“We have taken big steps to improve our risk-based pricing framework,” said Shemi. “It was the old framework that was really out of sync. [These changes] Give us the ability to remove quirks that have been prevalent over the years. Is it correct to say that these were last comprehensively reviewed eight or nine years ago? Years didn’t mean much to us. [nor to] to Director Thompson. We thought now would be a good time to do this review. “

When asked about instinctive responses to pricing changes, particularly those related to pricing changes for various credit scores, Shemi said much of the response came from consumers and from the industry itself. I said nothing.

“Regarding consumers, and in relation to the May 1st date, as you pointed out, we announced these latest changes in January,” Shemi said. “The industry has started rolling these out to consumers in the meantime. [which is] Just like how the mortgage market works. There is no magic with the May 1st effective date. These are valid for the mortgage he turned over to the GSE on May 1st. “

That means mortgages affected by the new fees were already starting to price in late February or early March in anticipation of the May 1 effective date.

“The industry has been consuming these fees for weeks already,” Shemi explained. “So there seems to have been an attempt to instill fear in the hearts and minds of consumers around May 1st. A phone call about one day has either revealed dishonesty or exposed a fundamental misunderstanding of how the mortgage market works.”

DTI components, political headwinds

Consideration of the DTI as part of the price index and the industry’s response to the larger LLPA changes met with strong opposition from the mortgage industry, causing these changes to be delayed by the FHFA. Shemi said the FHFA remains sympathetic to the industry’s concerns expressed, but argued that the updated pricing framework more aggressively integrates income thresholds into fees. bottom.

“There are examples of using revenue to actually reduce fees,” says Shemi. “Therefore, if you are a first-time homebuyer with a regional median income of 100% or less, or a high-cost area with a regional median income of 120% or less, under these thresholds, we do not use income information. reduce or eliminate fees entirely, so we just want the consumer to have the right experience and the industry to deliver these to the consumer in the right way.”

In an earlier episode of the HousingWire Daily, former MBA CEO Dave Stevens said that now that a sitting president is free to fire FHFA directors, he will be able to “play around” with risk-based pricing. He said he was concerned that he was demonstrating a paradigm. Wheeler asked Shemi if he meant that these fees could be changed regardless of which party was in power.

Shemi said the fees hadn’t been properly assessed in a decade and didn’t anticipate how political headwinds might change FHFA policy in the future.

“The key thing to understand here is that this adjustment was made to more closely align with the corporate regulatory capital framework that went into effect last year,” Shemi said. . “It wasn’t meant to incentivize or penalize different parts of the grid, but the adjustments to the corporate regulatory capital framework meant that certain tariffs would move in certain directions. It offers a lot of explanation in terms of going to the

You can listen to the full discussion here.

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