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Stakeholders Urge Watt to Reduce LLPAs and G-Fees

hands-writingA group of 25 stakeholders in the housing industry that includes some of the country’s most influential housing organizations has written a letter [1] to FHFA [2] Director Mel Watt asking him to either reduce or eliminate loan-level price adjustments (LLPAs) and guarantee fees charged by the Fannie Mae [3] and Freddie Mac [4].

LLPAs are paid at the time the loan is delivered to the GSEs and can total up to 4 percent of the loan value for some borrowers, depending on such factors as credit scores and LTV ratios. These fees were introduced in 2008 to address increasing default risk.

In the letter, the groups noted that g-fees have increased by approximately 164 percent from 2009 to 2014, from 22 basis points to 58 basis points, while during that same time, credit quality increased and regulations limiting risk to the GSEs went into effect.

These g-fees, combined with LLPAs, have “resulted in substantial gains in the GSEs’ income, without achieving broad access to credit despite the unprecedented liquidity provided by the U.S. Treasury Department and Federal Reserve to Fannie Mae and Freddie Mac. No borrower should face arbitrarily high prices for mortgage credit, especially when the burden is felt particularly hard by low- and moderate-income and first-time homebuyers. We therefore request that FHFA direct the GSEs to reduce or eliminate LLPAs going forward,” according to the letter.

Among the groups signing the letter were National Association of Realtors, National Association of Home Builders, Credit Union National Association, Center for Responsible Lending, National Association of Federal Credit Unions, National Association of Real Estate Brokers, American Land Title Association, and U.S. Mortgage Insurers.

“Housing credit remains too tight and too many qualified borrowers are unable to get access to affordable mortgage credit, in large part because the GSEs are still charging LLPAs eight years after the financial crisis,” said Lindsey Johnson, USMI President and Executive Director. “Low down-payment borrowers are being double charged for the risk being assumed by private mortgage insurance (MI). These additional fees are particularly burdensome for low- and moderate-income and first-time homebuyers. It’s time borrowers get the full benefit of the credit risk transferred away from the GSEs to private capital in the form of MI.”

The groups noted in the letter, “Eight years after the financial crisis, mortgage credit quality has improved dramatically and regulations have improved the industries risk management practices. We believe these changes justify eliminating LLPAs. Our organizations and members appreciate the opportunity to raise this important issue so closely tied to expanding homeownership for millions of Americans.”

An FHFA spokesperson told MReport, “We have received the letter and will respond.”

Click here [1] to view a copy of the letter.