The Federal Housing Finance Agency is making changes to the cost of home loans sold by Fannie Mae and Freddie Mac. Separately, they are putting down a fee for joint mortgage bonds.
Pre-determined price changes are now organized in new matrixes with three basic series divided for purchase, refinancing rates, and refinancing loans, again classified by new credit score and loan-to-value ratio, according to FHFA press releases.
Additional pricing information is provided for loans with more than 40% loan-to-income, upfront fees may be waived, limited or waived if borrowers meet other cost criteria.
All of the changes are aimed at reducing loan costs for low-to-moderate borrowers, but some of those reductions are offset by higher mortgage rates. It serves customers with higher incomes, viz. cash, high balance and second home loans. Checks and balances are necessary because Fannie Mae and Freddie Mac must manage the balancing act of maintaining financial stability against financial risk in at the same time they try to fulfill a home building mission.
“These strategic changes will allow developers to better achieve their mission of facilitating equal access and sustainability in home ownership, while improving their legal capital position over time, ” said FHFA Director Sandra L. Thompson in the press release.
The FHFA has recently taken several actions aimed at achieving the right balance between the two goals, which will be reflected in the new matrices.
New changes follow the notice is to return some of the previous payments last fall, and request to increase the area’s income limit used to determine eligibility for wage breaks, which in response increased to 100% from 80%.
The latest loan rate updates will be made public for mortgages issued and received by the government as of May 1.
The Association of mortgage investors asked for some flexibility in the date of implementation, noting that the lenders may need time to integrate the matrixes into their operating costs and evaluate their overall financial impact.
“The FHFA’s comprehensive review of the GSEs’ up-front pricing framework has resulted in significant grid reworking, and it will take time to assess the full impact on borrowers and the market,” Bob Broeksmit, president and CEO of Mortgage Bank. Association, said in a press release. “Our initial evaluation shows that the new platform provides a very low increase in total cost.”
Broeksmit, however, was cautious about the reduced rates offered for low-interest programs – which he said he would like to see more of – and the combined reduction in mortgage settlement fees, which will start on April 1.
“While the MBA continues to believe that there should not be a fee for embedded bonds, we appreciate the FHFA’s acceptance of business ideas and its willingness to make a compromise,” said Broeksmit in another media release.
That fee will be reduced from 50 basis points to 9.375. Freddie Mac will apply the fee to the collateral issued by Fannie Mae at the time that collateral is used for a new hybrid security.
Many trade groups are concerned about the fee added last summer it undermined the uniform MBS structure because it contributed to the idea that Fannie and Freddie were not interchangeable. UMBS was created at Freddie’s will.
Some adjustments to the UMBS fee may still be necessary to protect mutual trust, according to Michael Bright, CEO of the Structured Finance Association, referring to the move as a “temporary step.”
“We look forward to working with the FHFA on any additional measures needed to protect against UMBS security breaches,” Bright said in a press release.