Last week there was a wave of breathless coverage about changes in fees at Fannie and Freddie. One nice thing about the housing issue is that it is not partisan, or at least the partisan aspects don’t map to the normal left-right divide. So, over time I have become less tempted to be overtly political. There’s plenty of dumb stuff on the left and on the right, but also plenty of people willing to be a part of progress from both sides. Even a curmudgeon like me can mostly just focus on getting the facts right and building the case for the progress plurality. Or at least I try.
I think you're right that news orgs misrepresented that you'll be punished for having a greater credit *score*, but if we take size of downpayment as an indicator of creditworthiness, then it is true that there are many situations where the more creditworthy customers pay more than the less creditworthy. For example, the LLPA for the bottom credit score tier, putting no money down, is less than the LLPA for the next two tiers putting 80% down.
I liked your article, thank you. I’m a loan officer in Milwaukee and I saw many in my network share/post the Fox News screenshot. Very misleading.
In practice, my response has been to help clients get into the “affordable” programs Fannie and Freddie offer, there’s an income based program (not even for first time homebuyer) and also a first time homebuyer program. Based on either <80% area median income and <100% respectively.
Both of those programs have a full waiver of ALL LLPA adjustments. 660 score gets the “same rate as grandma” with a 40% DP and 780 score. I call it “grandma’s rate” with my clients.
It’s not necessarily fair, but they appreciate it. When we as lenders are forced to use a GSE under conservatorship, you don’t really get an option besides to play with the rules we are given.
If there is a national finance market for X, and part of that market is a small fee to offset risks, and the level of the fee rate is based on credit scores, and people with worse credit see a decrease, while people with better credit see an increase, it's necessarily the case that one of two things (or both) is true:
1) the people with better credit are subsidizing people with worst credit
Or
2) rates are inflated and there's enough slush in the system to re-jigger them in all kinds of ways - maybe even some that are political.
"""I’m pretty sure what they’ve done here is cherry pick the low credit score that had the largest fee decrease. Then, they reported the total fee of a higher credit score. So, a low down payment 620 score has a fee that went from about 6.75% to 5% (when mortgage insurance is included). And, also, the fee for a 740 score went from 0.25% to 1%. (plus a 0.25% mortgage insurance fee). Why didn’t they just say that fees for 740 scores went up 0.75%? It would still get their partisan point across. It would still be weird, because it would be describing mortgages with two different down payments. And it would hide the fact that the 620 score still has a fee that is more than 3% higher than the 740 score. But, at least it wouldn’t be mixing levels with changes.'""
How about for accuracy's sake we use those numbers and report that the 620 fees dropped by 26% of interest charges, and the 740 score went up 400% when mortgage insurance is included for both?
I am a retired mortgage loan officer. My recollection is that loan-level price adjustments were first introduced in 2008. In my opinion, they have no relation to actual loan losses and should be abolished.
I think you're right that news orgs misrepresented that you'll be punished for having a greater credit *score*, but if we take size of downpayment as an indicator of creditworthiness, then it is true that there are many situations where the more creditworthy customers pay more than the less creditworthy. For example, the LLPA for the bottom credit score tier, putting no money down, is less than the LLPA for the next two tiers putting 80% down.
I made this graph to help illustrate: https://imgur.com/wgcx9Cg
Is it possible to game this by putting down < 5% at loan origination and then paying off whatever you'd planned to put down originally?
I liked your article, thank you. I’m a loan officer in Milwaukee and I saw many in my network share/post the Fox News screenshot. Very misleading.
In practice, my response has been to help clients get into the “affordable” programs Fannie and Freddie offer, there’s an income based program (not even for first time homebuyer) and also a first time homebuyer program. Based on either <80% area median income and <100% respectively.
Both of those programs have a full waiver of ALL LLPA adjustments. 660 score gets the “same rate as grandma” with a 40% DP and 780 score. I call it “grandma’s rate” with my clients.
It’s not necessarily fair, but they appreciate it. When we as lenders are forced to use a GSE under conservatorship, you don’t really get an option besides to play with the rules we are given.
If there is a national finance market for X, and part of that market is a small fee to offset risks, and the level of the fee rate is based on credit scores, and people with worse credit see a decrease, while people with better credit see an increase, it's necessarily the case that one of two things (or both) is true:
1) the people with better credit are subsidizing people with worst credit
Or
2) rates are inflated and there's enough slush in the system to re-jigger them in all kinds of ways - maybe even some that are political.
"""I’m pretty sure what they’ve done here is cherry pick the low credit score that had the largest fee decrease. Then, they reported the total fee of a higher credit score. So, a low down payment 620 score has a fee that went from about 6.75% to 5% (when mortgage insurance is included). And, also, the fee for a 740 score went from 0.25% to 1%. (plus a 0.25% mortgage insurance fee). Why didn’t they just say that fees for 740 scores went up 0.75%? It would still get their partisan point across. It would still be weird, because it would be describing mortgages with two different down payments. And it would hide the fact that the 620 score still has a fee that is more than 3% higher than the 740 score. But, at least it wouldn’t be mixing levels with changes.'""
How about for accuracy's sake we use those numbers and report that the 620 fees dropped by 26% of interest charges, and the 740 score went up 400% when mortgage insurance is included for both?
This article is quite the gaslight.
I am a retired mortgage loan officer. My recollection is that loan-level price adjustments were first introduced in 2008. In my opinion, they have no relation to actual loan losses and should be abolished.