Some borrowers have had to pay upfront credit fees, also known as delivery fees, since the days of the financial crisis in 2008… However, the FHFA has recently announced a change, and the fees will now be waived if certain criteria are met.
But what could that mean for lenders, loan officers, and even borrowers who qualify? Let’s first dive into what these fees are and how they may impact hopeful homebuyers and the parties involved in the loan origination process.
What the FHFA Announced:
On October 24th at the National MBA Conference, FHFA announced targeted changes to Fannie Mae and Freddie Mac’s guarantee fee pricing by eliminating upfront fees for certain borrowers and affordable mortgage products.
As part of the pricing changes stemming from FHFA’s ongoing review of the Enterprises’ pricing framework announced last year, FHFA eliminated upfront fees for:
- First-time Homebuyers (FTHBs) who qualify
- Those at or below 100 percent of area median income (AMI) in most of the United States and below 120 percent of AMI in high-cost areas
- HomeReady®1 & Home Possible®2 loans
- Fannie Mae and Freddie Mac’s flagship affordable mortgage programs
- HFA Advantage®2 and HFA Preferred™1 loans
- GSE programs supporting municipal and state housing agencies and CDFIs – Community Development Financial Institutions
- Single-family loans supporting the Duty to Serve (DTS) program
- DTS focuses on: Manufactured Housing, Rural Housing, and Affordable Housing Preservation
According to Director Sandra L. Thompson, FHFA has chosen to discontinue these fees “to promote sustainable and equitable access to affordable housing” with this resulting in savings for approximately 1 in 5 borrowers of the Enterprises’ recent mortgage acquisitions. The delivery fee waivers are effective for loans delivered on and after 12/1/2022.
What Credit Fees Are:
For some quick background on upfront credit fees, they are one-time fees charged by the GSE (upon delivery) based on various credit risk characteristics of the loan. While certain credit/delivery fees have always been a part of GSE pricing (Ex. Cash Out, ARMs, Investment Properties, 2nd Homes etc.), they introduced an additional fees schedule based on credit score and LTV during the Great Financial Crisis. Originally, they were characterized as “temporary” due to the economic downturn, but they have never been removed.
When people speak of credit fees today, they are typically referring to the Credit score/LTV grid (refer to Page 2 of Fannie’s exhibit and Page 4 of Freddie’s exhibit). These fees reduce the loan proceeds lenders receive when selling a loan to the GSEs. To cover these fees, the lender will typically increase the note rate, which increases the amount the GSEs will pay for the loan.
The magnitude of increase in interest rates varies based on market conditions and loan characteristics. In this market, a good rule of thumb is a 5:1 ratio between the upfront fee and the change in note rate. So, for each 1% of upfront fee required, the lender would increase the note rate by ~0.2% to maintain a similar profit margin.
Not only does this change help you, but it also helps you to better aid your customers during their homebuying journey. A reduction to upfront fees means that they have a lower overall cost. This is a useful talking point when explaining the reality of homebuying to potential borrowers. Costs like these may intimidate some potential FTHBs, but assuring them that these changes have been implemented can help to better level set their affordability expectations.
Who and What Gets Impacted:
Eliminating these fees can significantly lower monthly payments for many borrowers. And, in some cases, expand eligibility allowing more borrowers to qualify for a home loan.
The FHFA has identified the four main segments that are impacted by this pricing change. Look at the table below for the breakdown of who is and what programs are affected.
|Segment||Definition/ Criteria||Credit fee before||Credit fee after|
|First-Time Homebuyer (FTHB)||No ownership in a residential property in 3 yrs prior to purchase||Standard credit fee unless qualify for HR/HP or HFA||Waived for FTHBs at or below 100% of area median income (AMI)*|
|HomeReady® & Home Possible® (HR/HP)||Income <80% AMI in any market
Any Income level in certain low-income census areas within markets
No FTHB restriction
|For loans >80% LTV, waived for Credit Score >680 and capped at 1.5% for Credit Score <=680||Waived for all HR/HP|
|HFA Advantage® and HFA Preferred™||Income & FTHB qualifications vary by State||Waived if AMI <80||Waived on all HFA|
|Duty to Serve (DtS)||Manufactured Housing, Native American, Rural Areas/Rural Banks||Varied based on combination of borrower, property, and loan characteristics||Waived for all DtS|
*120% area median income (AMI) in high cost areas
How This Helps Borrowers:
The changes the GSEs have made eliminate these upfront fees for many borrowers, thus reducing the cost of the mortgage. This enables lenders to lower the interest rate and maintain similar profit margins as they had before these changes. Lowering the cost of homeownership allows some borrowers who wouldn’t have qualified before to get a home. This shift helps underserved communities have more access to affordable housing options in a constantly evolving housing market.
Waiving the fees also presents the opportunity to remind your customers of the value of MI. FTHBs and low-income borrowers in particular may have more opportunity with these changes. They can make a down payment of less than 20% to qualify for a home if private mortgage insurance (PMI) is selected, and may be able to take advantage of reduced coverage requirements in some cases.
When customers can put down less upfront and still qualify for a loan, whether it’s the delivery fees or the down payment, we in the industry can help more people get into homes faster. And Enact believes that these loans, when properly underwritten, are prudent and support sustainable homeownership.
The opportunity to achieve the dream of homeownership is incredibly valuable for your borrowers, of course. But, you’re also opening up the pool of potential homeowners that you can help! Plus, it’s less expensive for lenders to originate loans for borrowers who qualify. Accounting for current market conditions, this pricing change is opening doors for many across the housing industry.
Want to learn more?
Be sure to refer to Fannie Mae’s website and Freddie Mac’s website for more in-depth info on how these credit fee changes impact their programs geared toward first-time homebuyers and low-to-moderate income borrowers.
Our dedication to helping borrowers achieve the dream of homeownership doesn’t stop here — we even offer training courses on these topics, too. And don’t forget to check out this video from our own Mary Kay Scully, part of Enact’s Training and Consulting team, that details some upcoming training opportunities on these changes!
If you want additional information about these updates or need some extra insight, you can always contact your Enact Sales Rep for more info as well. They’ll be happy to help you meet your business needs, answer questions, and point you in the right direction.
1 HomeReady and HFA Preferred are registered trademarks of Fannie Mae.
2 Home Possible and HFA Advantage are registered trademarks of Freddie Mac.
Never miss a post by subscribing to the Enact MI Blog! We’ll send you our most up-to-date topics right into your inbox.