FHFA to increase fees April 1, 2022

The release date of the new FHFA fee increase would seem to be a really easy lay up in the land of early April Fools jokes; however, with the gears turning in the new calendar year we find this is actually not a joke. On January 5, 2022 the FHFA announced upfront fee increases for certain high balance loans and second home loans to be delivered to Fannie Mae and Freddie Mac. As a county with many “high cost” loan balances San Diego County and its numerous municipalities that fall within this category will all be subject to these new fees beginning April 1, 2022.

High Balance mortgages are mortgages originated in areas or regions above the conforming loan limit. (In a recent article we shared the increased conforming loan limits for 2022 for reference.) The upfront fee increase for high balance loans will increase in a tiered fashion depending on the loan to value ratio (LTV). For primary residences these fee increases will be between 0.25% – 0.75% with the lower LTV representing the lower end of the fee increase and the higher LTV representing the higher fee increase. For second homes these fee increases will be between 1.125% – 3.875% with the lower LTV representing the lower end of the fee increase and the higher LTV representing the higher fee increase. Future guidance is expected along with clarifications from banks as lenders have to calibrate their loan programs to accommodate these changes prior to the April 1, 2022 deadline.

NOTE: For you First time homebuyers in high costs areas who have incomes at or below 100% of the areas median income, you will have no specific high balance upfront fees, but please prepare yourself for this could change against your favor with a simple policy chance and industry bulletin.

The spirit of the decision. “These targeted pricing changes will allow the Enterprises to better achieve their mission of facilitating equitable and sustainable access to homeownership, while improving their regulatory capital position over time,” said FHFA Acting Director Sandra L. Thompson. “Today’s action represents another step FHFA is taking to strengthen the Enterprises’ safety and soundness and to ensure access to credit for first-time home buyers and low- and moderate-income borrowers.” In short, it’s a policy decision where the two sides of this coin are: bring more money in, and then use those funds to reach disparate groups.

So what does this mean? In a mortgage environment where we are already facing increasing rates as a result of red hot inflation and Fed tightening monetary policy as a result, this is surely to create some affordability crunch on aspiring homebuyers or refinancers who are only beginning their finance journey this coming spring. To begin with high balance loans are more costly due to the nature of supply and demand of money available to fund these loans, therefore they commonly have interest rates higher than that of conforming loans. Additionally, this could put some unnecessary price pressure on sellers who are seeking top dollar for their sale still in 2022 as the buyer pool may thin out a bit and or decide they do not wish to spend top dollar on price because the costs to borrow have increased. From the government’s perspective, they hope to shore up their financial holdings to further increase the strength of both Fannie Mae and Freddie Mac so that they can begin closing the homeownership gaps they are so focused on curing.

How will we know the impact of this? The market data will reveal the positive or negative impact of this fee increase over time. Where the policy seems to draw a straight line between increasing fees to increase homeownership opportunities, the policy still does not address the 2 main threats that prevent borrowers from becoming approved for homeownership: Income and credit. In an ideal setting, the fees collected should go to assistance that directly helps aspiring homeowners close the gap between where they’re starting from and the goal of homeownership – and then assist and guide them in crossing all disqualifying elements from their borrower profile in order to actually help them achieve home ownership. If this step becomes overlooked, never planned, or poorly executed, what we’re left with is a fee increase at the onset, that fails to deliver the promises to disparate groups the policy aims to help.

For over 16 years, we have found ourselves in the breach of these two sides of the same coin. Where borrowers cannot qualify, we teach them how to qualify. Where a borrower does not understand what they need to correct in their credit, we point them in the right direction. The gap that separates a borrower from homeownership can be very small but make them feel like they’re crossing the Grand Canyon. We have found that policy can only get homeowners part of the way there. Individual attention to each borrows specific steps in curing their financial picture in the eyes of underwriting isn’t solved at the legal level, the product level, or even the fee level. It’s handled at the personal level where borrowers fully understand their financial health, make qualified decisions about how they wish to pursue homeownership, and have a running mate at their side while doing so. April 1, 2022 will come and go, but this approach to conducting business will not waver.

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Rates & Fees Disclosure:
^‡ The payment on a $300,000 30-year fixed-rate VA loan at 3.000% with a 80% loan-to-value ratio is $1,292.01 with 0 (zero) origination points due at closing. The annual percentage rate (APR) is 3.235%. Payment does not include tax and insurance premium impounds. The actual payment amount will be greater. By refinancing your existing loan, the total finance charges may be higher over the life of the loan. Some state and county maximum loan amount restrictions may apply. Appraisal fee of $600, Processing Fee of $895, Underwriting Fee of $795 included in APR calculations with borrower paying 0 (zero) loan origination points.

^‡ Based on Mortgage Heroes internal data.