It was an eventful day for the Federal Housing Finance Agency (FHFA) at the Mortgage Bankers Association (MBA) Annual Convention & Expo in Nashville, with the agency announcing the elimination of several upfront fees and an update to the credit scores used by Fannie Mae and Freddie Mac.
The jettisoned fees are targeted toward increasing affordability, stemming from an ongoing review of the pricing framework across the government-sponsored enterprises (GSEs). The FHFA is doing away with upfront fees for the following situations:
• First-time homebuyers at or below 100% of area median income in most of the U.S. (and below 120% in high-cost areas)
• The GSEs’ flagship affordable mortgage programs, namely Fannie Mae’s HomeReady and Freddie Mac’s Home Possible
• The GSEs’ affordable loan products for housing finance agencies, namely Fannie Mae’s HFA Preferred and Freddie Mac’s HFA Advantage
• Single-family loans that support the GSEs’ Duty to Serve program.
“Those borrowers who will benefit from this fee elimination are composed primarily of purchase borrowers with limited income, borrowers with limited resources for downpayments, and borrowers in underserved communities,” FHFA director Sandra L. Thompson said. “We expect that approximately one in five borrowers would be eligible for these pricing benefits given the enterprises’ recent acquisition experience.”
No implementation date has been announced for the abolishment of the fees, but according to Thompson, the reductions will go into effect “as soon as possible.”
The announcement was met with praise by the Community Home Lenders of America (CHLA).
“With skyrocketing mortgage rates and run-ups in home prices in recent years, homeownership affordability has become extremely challenging — so this announcement is well conceived and most appreciated,” according to a statement from CHLA executive director Scott Olson.
Another of the big takeaways from Thompson’s address at MBA Annual was the replacement of the Classic FICO score with two new credit scores in the underwriting of Fannie- and Freddie-eligible loans. FICO 10T and VantageScore 4.0 will be the new standards for the GSEs since, according to Thompson, they provide more accurate scores and are more inclusive than Classic FICO.
“While the enterprises have already taken steps to expand equitable access to credit, such as enhancements to their underwriting systems, both FICO 10T and VantageScore 4.0 factor in new payment histories for borrowers when available, such as rent, utilities and telecom payments,” Thompson said.
“Requiring both credit scores, when available, will result in more borrowers that can be evaluated by the enterprises than a single score alone, which will improve their management of credit risk while also responsibly and sustainably expanding access to credit for borrowers with less robust credit histories.”
There will be a “multiyear implementation phase” for the FHFA and the GSEs to integrate the new scores, Thompson said.
“We know there will be many questions about these details and the associated timelines, and we are committed to working with stakeholders to ensure a smooth and manageable transition.”