Mortgage

FHFA hikes fees for high balance and second home mortgages

FHFA hikes fees for high balance and second home mortgages
Written by Publishing Team

The Federal Housing Finance Agency is increasing collateral fees for high balance mortgages and second mortgages, a move that has cautious support from some sectors of the industry.

back in september, FHFA Suspended Reviews To preferred stock purchase agreements that limited the purchase of second home loans by government-sponsored companies, as well as the temporary moratorium on investment property mortgages and loans with certain risk characteristics.

Upfront fees for high-balance loans will increase between 25 and 75 basis points, depending on the loan-to-value ratio. For second home loans, the upfront fee will increase between 112.5 and 387.5 basis points, also graded by lifetime value. These changes are effective for loans to Fannie Mae and Freddie Mac beginning April 1.

Increase matching loan limit At the beginning of this year spur change. The nominal limit is now $647,200, but in areas classified as high-cost areas, the upper limit is now $970.500.

“These targeted price changes will allow organizations to better achieve their mission of facilitating equitable and sustainable access to home ownership, while improving the regulatory capital position over time,” Acting Director Sandra L. Thompson said in a press release about the fee changes. “Today’s action represents another step the FHFA is taking to enhance the safety and security of businesses and to ensure access to credit for first-time home buyers and low- and middle-income borrowers.”

Higher fees will not affect beneficial pricing processing for programs like HomeReady from Fannie Mae, HFA Preferred, Freddie Mac’s Home Possible, and HFA Advantage. Loans to first-time homebuyers in high-cost areas with incomes of 100% or less than the area’s median income will not have a high-balance specific upfront fee.

The purchase limits were artificial and ineffective, so this is a much better way to do things, said Scott Olson, executive director of the Home Lending Community Association.

“Obviously we’re in the loan-creation business, and we’d never be happy to see higher fees on anything,” Olson said. Having said that, if this is part of a broader strategy…to keep fees as low as possible for their core loan products, especially for loans to underserved borrowers, and if this is necessary to be safe and sound, be good to go. with this “.

Bob Broxsmith, president and CEO of the Mortgage Bankers Association, noted that raising fees is a better way for the FHFA to limit second home loan purchases than the cap.

Broeksmit said this rate adjustment applies to lenders of all sizes, which is positive to ensure all lenders are treated equally in the secondary market. It is especially important for lenders located in areas with a strong second home market.

Broeksmit said the cap “was a very asymmetric way to achieve the goal of reducing overall second home deliveries as this would be a more consistent method that lenders could plan for.”

Unlike August 2020 Negative market fees In refinancing, initially announced by then-FHFA Director Mark Calabria with approximately two weeks’ notice, this fee change will take effect April 1. This gives sellers time to make appropriate adjustments and allows lenders time to clear their pipelines without jeopardizing interest rate locks for existing consumers, Broeksmit said.

Affordable housing activities could benefit from increased fees.

“If second homes and high-balance businesses have wider margins relative to public education institutions, we would expect they would take some of that extra margin and spread it out to reduce loan level rate adjustments for some mission-focused loans like first-time home buyers and low-to-middle-income buyers Who today may encounter layered LLPAs that make them more expensive [and] constitute a much greater barrier to homeownership,” Broeksmit said.

But the Association of Independent Mortgage Experts argued that the fees punished high-income borrowers and called for measures that would entice lenders to support the agency’s mission of affordable housing.

“At the base of our opposition [to the fee increase]”We believe that FHFA rate adjustments should be used to assess risk, not penalize a particular class of borrowers,” said a statement from AIME. Lending to low- and middle-income buyers.

AIME wants the FHFA to reconsider these changes and instead put its effort into improving programs like HomeReady and Home Possible.

Change is likely to provide a boost To the private-branded securitization market, which received results from removing real estate investment and second home roofs as well as increasing the loan limit.

“I think we’re going to see that the private market might be a more attractive delivery option for some second homes and highly-balanced matching loans than is currently the case,” Broxsmith said.

This sentiment resonates with some of those involved in the engagement work.

said Tom Hutchins, executive vice president of production for non-qualified mortgage lender Angel Oak Mortgage Solutions.

Others felt the same way.

“This is the right move on the part of the FHFA, as the $1 million guarantee is a far cry from the core mission of Fannie Mae and Freddie Mac,” Michael Bright, CEO of the Structured Finance Association, said in a statement. “We have seen the private-branded stock market meet demand, and the private market can provide credit to borrowers affected by this change.”

Keefe, Bruyette & Woods Bose George analyst, said in a quick note that the high fee structure would make it difficult for GSE to buy second home mortgages, even without returning the cap. “Ultimately, we believe that this production and subsequent securitization will fall into the hands of non-bank providers of capital.”

While the change is positive for mortgage originators and banks, the biggest beneficiaries should be mortgage investment trusts such as the Redwood Trust, MFA Financial, New Residential and AG Mortgage Investment Trust, he wrote.

George added that mortgage insurers on the other hand, while not directly benefiting from this change, could increasingly see the benefits to their businesses if it led to those above-mentioned lower LLPAs for higher-risk borrowers.

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