Borrowers With High Credit Scores Penalized Under New Federal Mortgage Fee Plan
Plus: Buzzfeed News is shutting down, alcohol delivery not linked to higher rates of booze consumption, and more...
Mortgage borrowers with good credit may face higher costs under a new scheme from federal mortgage associations Fannie Mae and Freddie Mac. The firms have released a new Loan–Level Price Adjustment (LLPA) Matrix for loans sold to them after May 1, 2023. Under the new matrix, borrowers with high credit scores will face higher mortgage fees than before and those with lower credit scores will face lower fees.
"It's unprecedented," David Stevens, a former federal housing commissioner and former CEO of the Mortgage Bankers Association, told the New York Post. "My email is full from mortgage companies and CEOs [telling] me how unbelievably shocked they are by this move."
The fee increase is unlikely to lead to significantly higher monthly mortgage payments for most borrowers. For instance, someone with a $400,000 loan and a 6 percent mortgage rate may wind up paying about $40 more per month, according to Stevens' calculations.
But an extra $40 per month means an extra $480 per year. And over the whole course of mortgage repayment, a homeowner could wind up paying thousands of dollars more due to the fee shift.
Regardless of what the shift means in terms of actual costs, it seems unfair that borrowers with extremely good credit are effectively being penalized while borrowers with lower credit scores are being rewarded.
"This was a blatant and significant cut of fees for their highest-risk borrowers and a clear increase in much better credit quality buyers – which just clarified to the world that this move was a pretty significant cross-subsidy pricing change," Stevens said.
"Overall, lower-credit buyers will still pay more in LLPA fees than high-credit buyers – but the latest changes will close the gap," notes the Post:
Under the new rules, high-credit buyers with scores ranging from 680 to above 780 will see a spike in their mortgage costs – with applicants who place 15% to 20% down payment experiencing the biggest increase in fees….
LLPAs are upfront fees based on factors such as a borrower's credit score and the size of their down payment. The fees are typically converted into percentage points that alter the buyer's mortgage rate.
Under the revised LLPA pricing structure, a home buyer with a 740 FICO credit score and a 15% to 20% down payment will face a 1% surcharge – an increase of 0.750% compared to the old fee of just 0.250%….
Meanwhile, buyers with credit scores of 679 or lower will have their fees slashed, resulting in more favorable mortgage rates. For example, a buyer with a 620 FICO credit score with a down payment of 5% or less gets a 1.75% fee discount – a decrease from the old fee rate of 3.50% for that bracket.
Mortgage News Daily explained it this way in January when the changes were announced:
The effective penalty for having a credit score under 680 is now smaller than it was. It still costs more to have a lower score. For instance, if you have a score of 659 and are borrowing 75% of the home's value, you'll pay a fee equal to 1.5% of the loan balance whereas you'd pay no fee if you had a 780+ credit score. But before these changes, you would have paid a whopping 2.75% fee. On a hypothetical $300k loan, that's a difference of $3750 in closing costs.
Elsewhere in the spectrum, things got worse. Borrowers with higher credit scores will generally be paying a bit more than they were under the previous structure.…This doesn't necessarily come out of your pocket upfront as lenders can offer higher interest rates in some cases and pay these costs for you (but the costs are still there, and still technically being paid by you over time in the form of higher interest rates).
Federal Housing Finance Agency Director Sandra L. Thompson called it "another step to ensure that [Fannie Mae and Freddie Mac] advance their mission of facilitating equitable and sustainable access to homeownership."
FREE MINDS
Buzzfeed News is shutting down. Former Editor in Chief Ben Smith (now editor in chief of Semafor) explores what went wrong—a story that mirrors larger shifts in the internet-media ecosystem and the evolution of social media platforms and public opinion about them.
"The end of BuzzFeed News also signals a vast shift in digital media that those of us who live inside it are feeling intensely right now, the end of one era and the beginning of another," wrote Smith:
[Buzzfeed co-founder Jonah] Peretti had built BuzzFeed into a traffic juggernaut by being among the first to see the rising social web. But BuzzFeed never found a new path when that trend turned against us — when consumers found their Facebook feeds toxic, not delightful; when platforms decided news was poison; and when Facebook, Twitter, and the rest simply stopped distributing links to websites.
Peretti created BuzzFeed in 2006 while he was working at Huffington Post, as it was then called, which he co-founded. In 2020, BuzzFeed — shaky but still apparently ascendant —acquired HuffPost off the hands of its latest owner, Verizon. (As I recall, they basically paid BuzzFeed to take it off their hands.)
But as the social tide receded, HuffPost's giant, old-fashioned front-page, has remained surprisingly vital. In its first iteration as a liberal answer to the Drudge Report, it had hooked a generation of baby boomers in the mid-aughts with a mix of giddy coverage of Barack Obama and salacious celebrity gossip. Drudge and Huffington Post, the old portals that propped up the internet of the mid-aughts, will outlive the social media age, along with, of all things, Yahoo!.
FREE MARKETS
A new report from the R Street Institute shows alcohol delivery is not correlated to higher rates of alcohol consumption. The report is based on recent data from the National Institute on Alcohol Abuse and Alcoholism (NIAAA) Surveillance Report, which R Street compared to state alcohol delivery rules.
"News stories during the pandemic suggested that liberalizing alcohol delivery laws was causing Americans to drink more," notes C. Jarrett Dieterle, a resident senior fellow at the R Street Institute and the author of Give Me Liberty and Give Me a Drink!
As one Washington Post headline from December 2021 put it: "States rushed to loosen alcohol laws in the pandemic. Heavy drinking went up, some studies say."
The problem is that these "studies" said no such thing. It was clear that more states were allowing alcohol delivery. And there was also evidence showing that Americans were drinking more during COVID-19. But there were no studies showing a connection between these two things. In fact, numerous researchers suggested that "social stressors" like loneliness and greater demands during the pandemic were the likeliest causes of increased consumption.
More here.
QUICK HITS
More good news out of TN today: the legislature unanimously passed a bill requiring TDOC to equip people leaving prison with a state ID, certified copy of their birth certificate & social security card. Thank you @RepAndrewFarmer & Sen. @ToddGardenhire! pic.twitter.com/7YpdVRKO3E
— Lauren Krisai (@laurenkrisai) April 21, 2023
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• PEN America's latest banned books report is out. "During the first half of the 2022-23 school year PEN America's Index of School Book Bans lists 1,477 instances of individual books banned, affecting 874 unique titles," the organization says.
• From The Free Press: "Having a baby made me even more pro-choice."
• A bill in Alabama (H.B. 229) "would create a review process for the possible resentencing or release" of incarcerated people age 50 and up who have already served at least 15 years in prison and were not in for "a crime that involved serious physical injury to a victim," notes the Alabama Political Reporter.
• "The populist right stumbles into boilerplate progressivism — again," laments Noah Rothman at National Review.
• Utah is making it easier for out-of-state and foreign workers to get licensed to work in the state.
• "Kansas' governor vetoed legislation Wednesday that would require clinics to tell patients that a medication abortion can be stopped using an unproven drug regimen," reports the Associated Press.