How Fannie Mae and Freddie Mac price their loans can make a significant difference on whether first-time homebuyers and Black and Brown homebuyers can afford a mortgage.
Their regulator, FHFA, asked for comments on the Enterprises’ Single-Family Mortgage Pricing Framework. In response to this, the National Housing Resource Center (NHRC) urged FHFA to remove loan-level-price-adjustments (LLPAs) altogether. Until recently, LLPAs put substantial extra pricing on many lower downpayment borrowers – which hits homebuyers buying for the first time and homebuyers coming from lower wealth communities who are more often Black and Brown borrowers. This further aggravates the affordability problem.
Instead of pricing individual loans, NHRC recommends that pricing for Fannie Mae and Freddie Mac should be spread uniformly across the entire portfolio. This will mean a slight increase in the guarantee fee paid by each borrower.
The only time NHRC recommends using loan-level pricing is on mortgages for second homes. These are not the core mission of Fannie Mae and Freddie Mac and the buyers of second homes are wealthier than the general population.
Housing counselors have often commented about the unfairness of the LLPA pricing on their clients. We would like to thank the 70+ housing counseling groups who signed on to support our comments. We appreciate your support in this RFI. You can read the NHRC comments here.
These recommendations would allow for more inclusion of borrowers of color and first-time homebuyers, especially as interest rates continue to rise this year.
