Major Shifts in Mortgage Costs

 A Comprehensive Overview

Introduction to the Recent Changes in Mortgage Fees

The mortgage industry in the United States has recently undergone significant changes with regards to the fees associated with new mortgages. These changes have impacted a majority of mortgage loans in the country and have led to substantial variations in costs for borrowers—some positive, others negative. In this article, we'll take an in-depth look at what these changes mean and how they may affect you.

Understanding the Changes: Loan Level Price Adjustments (LLPAs)

What Are LLPAs and How Have They Changed?

Loan Level Price Adjustments (LLPAs) are fees imposed by Fannie Mae and Freddie Mac—commonly known as "the agencies"—that guarantee a majority of new mortgages in the United States. LLPAs are determined based on specific loan features, such as the borrower's credit score, loan-to-value ratio, occupancy type (owner-occupied vs. non-owner-occupied), and, most recently, debt-to-income ratio.

The recent changes in LLPAs have led to notable shifts in the fees associated with new mortgage loans. For example, the penalty for having a credit score below 680 has decreased, making it less costly for borrowers with lower credit scores. However, borrowers with higher credit scores may experience an increase in fees compared to the previous structure.

Who Do These Changes Apply To?

The changes in LLPAs apply to any loan guaranteed by either Fannie Mae or Freddie Mac, regardless of the lender. It's important to note that most loans in the United States fall under this category. However, some loans, such as FHA/VA loans, certain jumbo loans, and specialty products, are not affected. Additionally, "non-conforming" loans—those not guaranteed by the agencies—remain unaffected. A typical example of a non-conforming loan is a jumbo loan from a retail bank or credit union.

When Do These Changes Take Effect?

The revised LLPAs will apply to loans guaranteed by the agencies starting May 1st, 2023. Consequently, many lenders will begin implementing these changes in March and April of 2023.

Additional Changes and Considerations

New Charges for Debt-to-Income (DTI) Ratios

One of the most notable changes is the introduction of a new charge based on a borrower's debt-to-income (DTI) ratio. This change may be controversial, as income calculations can vary, and debt calculations can be adjusted with advanced planning or debt consolidation. However, every loan guaranteed by the agencies will have a DTI attached to it, and borrowers with a DTI over 40% who are borrowing more than 60% of their home's value will pay higher fees.

Other Key Changes

• New credit score bands have been introduced at 760+ and 780+.
• There is increased differentiation between high-balance and non-high-balance adjustable-rate mortgage (ARM) loans.
• Several changes have been made to LLPAs for 2-4 unit properties.
• A new generic LLPA has been introduced for "subordinate financing," such as a second loan or home equity line of credit (HELOC).
• Fees for many "cash-out" loans have significantly increased.

How to Find Specific Changes

If you have a mortgage loan in process or are planning to apply for one soon, these changes may not apply to you immediately, as most lenders will not implement them right away. For clarification, we recommend contacting your lender.

For those interested in viewing the official changes, please visit the following link: https://singlefamily.fanniemae.com/media/9391/display. Here, you will also find a link to the previous/existing version of the LLPAs.