The U.S. House of Representatives has passed the Subcommittee on Housing and Insurance Chairman Warren Davidson’s HR 3564—The Middle-Class Borrower Protection Act of 2023 [1].
HR 3564 [1] would repeal the structure of upfront fees (Loan-Level Price Adjustment [2]) related to mortgages instituted by the government-sponsored enterprises (GSEs) on May 1, 2023, and reinstate the fee structure that was in place prior to that date. Upfront fees are charged to a borrower when the mortgage is originated and are based on the loan amount. The previous fee structure would be in place until the Government Accountability Office (GAO) [3] completes an assessment of the current upfront fees, at which point, the Federal Housing Finance Agency (FHFA) could propose a new fee structure. As part of that process, HR 3564 [1] would require:
- The FHFA to observe federal procedures for issuing new rules, and
- That any future modifications to upfront fees be based on the risk posed by the mortgage to the GSEs.
“The Biden Administration wants to use mortgage fees to put their finger on the scale and decide who gets to pay more and who gets to pay less,” said House Financial Services Committee Chairman Patrick McHenry [4]. “This will make housing less affordable, not more, and puts taxpayers at risk by threatening the safety and soundness of our housing finance system. Nearly 95% of Americans nationwide have credit scores over 680, and almost half of those borrowers will face an extra $1.8 billion in new fees over the next two years under the Biden Administration’s plan. House Republicans are taking action to protect middle class borrowers with Rep. Davidson’s bill, and I was proud to support it on the House floor.”
HR 3564 [1] also calls for the GSEs to extend a separate 10-basis-point guarantee fee (g-fee) increase to pay for the cost of the legislation. G-fees cover projected credit losses from borrower defaults over the life of the loans, administrative costs, and a return on capital.
The Congressional Budget Office (CBO) expects that it would take the GAO a little more than a year to complete its assessment and another year for the FHFA to implement any changes. Thus, under HR 3564, any updated fee structure would take effect around the beginning of 2026. Using information from the FHFA and CBO’s projections of GSE mortgage volume, CBO estimates that enacting the bill would increase direct spending by $900 million in 2024 and 2025. That increase in spending would occur because the amount of fees paid under the fee structure that was in place before May 1, 2023, would be less than under the existing structure. Beginning in 2026, CBO expects the FHFA’s updated fee structure would be broadly consistent with our current baseline projections. The actual fees could be higher or lower than those projections.