The Federal Housing Finance Agency (FHFA) is constantly trying to find new ways to even the playing field for borrowers and home buyers. Receiving a loan and buying a home is difficult and often inaccessible for those with low credit. However, that doesn’t make the need for homes disappear for those struggling to afford them. On May 1st, 2023, a restructuring of LLPAs took place, but many are still struggling to understand these new federal mortgage rules and what they mean for investors and homebuyers. Find out what you need to know below.
Why Restructure?
Home affordability has been at an all-time low for many first-time buyers, and taking out a mortgage to afford a home isn’t easy for those with low credit scores. Restructuring LLPAs and reducing closing costs helps bridge the gap in housing affordability between those with high and low credit scores. Historically, those with lower credit scores struggle to purchase their first home and generally come from lower-income households, upholding a vicious cycle that continues to threaten the future of the real estate market. As previously mentioned, this restructuring is an attempt to set more North Americans up for success as they attempt to buy their first home.
What Changed?
The FHFA changed the fee structure for loan-level price adjustment fees (LLPAs) to help those with low credit purchase a home. Fannie Mae and Freddie Mac charge LLPAs to offset the risk taken on by providing conventional loans to borrowers, as the government does not back conventional loans. Although this restructuring only applies to Fannie Mae and Freddie Mac, they are only two mortgage institutions with some of the more than 60% new mortgages available. With these new changes, people with low credit scores should pay less in LLPA fees, but some fear this restructuring could adversely affect those with good credit scores. However, Sandra L. Thompson, the FHFA director, said, “Higher-credit-score borrowers are not being charged more, so those with a lower-credit-score pay less.”
How Does This Affect Investors?
Ultimately, this fee restructuring is not a blanket rule and will not affect everyone equally, as a myriad of factors besides credit scores affect LLPA fees. However, it would be an oversimplification to say that restructuring technically cuts fees for those with lower credit scores and raises them slightly for those with higher credit scores. Those with a higher credit score will continue to benefit under the new fee structure but maybe a little less so than before on the loan-to-value ratio. Don’t go lowering your credit score simply because you think it will lower your LLPA fees—you’ll just end up hurting your ability to get better rates for other loans.
These new federal mortgage rules mean that investors may or may not feel these effects depending on their credit history. In fact, it may not affect you at all, or you might see less savings on your LLPAs. Overall, it’s very unlikely you’ll see an upcharge in fees.
Excalibur Homes is a Nashville property management company with the experience and skills to help you with any questions you may have regarding financing, leasing, or managing your property. Our team of highly dedicated and experienced property managers is ready and equipped with the knowledge to ensure you get the most out of your investment.
