Mortgage fees have become the focus of the mainstream media thanks to a policy change enacted by the Federal Housing Finance Agency (FHFA) to the pricing framework of Fannie Mae and Freddie Mac. Perhaps not surprisingly, different media outlets are offering different spins on the nature of the changes.
The FHFA changes were announced in January but received little attention in the mainstream media until an April 16 article in the New York Post that framed the matter in a provocative style.
“A little-noticed revamp of federal rules on mortgage fees will offer discounted rates for home buyers with riskier credit backgrounds — and force higher-credit homebuyers to foot the bill,” the newspaper wrote. “The result, according to industry pros: pricier monthly mortgage payments for most homebuyers — an ugly surprise for those who worked for years to build their credit, only to face higher costs than they expected as part of a housing affordability push by the US Federal Housing Finance Agency.”
Over the past week, other media outlets began covering the story – each with their own interpretation of what is happening. Consider the following quotes from a variety of outlets.
“But that doesn’t mean people with lower credit scores will pay less than those with higher credit scores,” said CNN. “The changes mean that people with higher credit scores will still pay less based on lower risk to the lenders, but having a lower credit score will now come with less of a penalty.”
“The changes relate to credit scores and downpayment sizes,” explained USA Today. “In some cases, people with higher credit scores may end up paying more while those with lower credit scores will pay less.”
“New rules that increase fees on some new mortgages look like a raw deal at first blush, appearing to penalize house hunters who’ve worked hard to keep their credit scores high,” stated Bloomberg. “But the reality is more complicated. The changes, which take effect May 1, are part of the Biden administration’s plan to expand access to homeownership.”
“The Biden administration was not forcing the adjustments via legislation or an executive order, and it was unknown if, or to what extent, the president supported them, or had a hand in them being implemented,” said the rumor-busting Snopes website.
Of course, everyone cannot be correct – is everyone with good credit being penalized, or only some people? Or is no one being penalized? And is this President Biden’s doing? With media coverage turning into a mortgage industry version of “Rashomon,” the FHFA sought to clear the muddy waters with an April 25 press release titled “Setting the Record Straight on Mortgage Pricing: A Statement from FHFA Director Sandra L. Thompson.” In this statement, Thompson lamented that “much of what has been reported advances a fundamental misunderstanding about the fees charged by the Enterprises, and why they were updated.”
Among the points that Thompson made in her statement were the following (all quoted verbatim):
- Higher-credit-score borrowers are not being charged more so that lower-credit-score borrowers can pay less. The updated fees, as was true of the prior fees, generally increase as credit scores decrease for any given level of down payment.
- Some updated fees are higher and some are lower, in differing amounts. They do not represent pure decreases for high-risk borrowers or pure increases for low-risk borrowers. Many borrowers with high credit scores or large down payments will see their fees decrease or remain flat.
- Some mistakenly assume that the prior pricing framework was somehow perfectly calibrated to risk – despite many years passing since that framework was reviewed comprehensively. The fees associated with a borrower’s credit score and down payment will now be better aligned with the expected long-term financial performance of those mortgages relative to their risks.
- The new framework does not provide incentives for a borrower to make a lower down payment to benefit from lower fees. Borrowers making a down payment smaller than 20 percent of the home’s value typically pay mortgage insurance premiums, so these must be added to the fees charged by the Enterprises when considering a borrower’s total costs.
- The targeted eliminations of upfront fees for borrowers with lower incomes – not lower credit scores – primarily are supported by the higher fees on products such as second homes and cash-out refinances. The Enterprises’ statutory charters specifically include references to supporting low- and moderate-income families by earning returns on mortgages for these borrowers that may be less than the returns earned on other products. Indeed, Congress incorporated this into the Enterprises’ charters decades ago and it is a long-standing component of the Enterprises’ core business models.
- The changes to the pricing framework were not designed to stimulate mortgage demand. We publicly announced the objectives of the pricing review at its onset (as noted above), and stimulating demand was never a goal of our work.
Also, Thompson never mentioned Biden’s name in the statement.
Did Thompson put an end to this confusion? Probably not. After all, there is another news headline from this morning, via the Washington Times: “House GOP bill blocks Biden fee hike for good-credit mortgage borrowers.”
Phil Hall is editor of WRE News. He can be reached at [email protected]
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