WASHINGTON—NAFCU, CUNA and several other trade groups sent a joint letter Wednesday to the Federal Housing Finance Agency to comment on the (FHFA) Duty to Serve proposed rule.
The groups addressed issues around the need for the reduction or elimination of loan-level price adjustments (LLPAs) charged by Fannie Mae and Freddie Mac.
“The GSEs’ credit pricing includes LLPAs and ongoing guarantee fees (g-fees), the former of which are paid at the time the loan is delivered to the GSEs,” the signers wrote. “The cost of LLPAs and g-fees are ultimately borne by borrowers as part of their up-front closing costs and/or as part of their ongoing monthly payments. LLPAs were introduced in 2008 and can vary greatly based on loan terms including borrowers’ credit scores, loan-to-value ratios and other risk factors. LLPAs can total up to 4.0% of the loan value for some borrowers. In addition, g-fees have increased sharply since 2009 and, 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.”
Since 2008, a number of developments have both increased mortgage credit quality and reduced GSE risk exposure, the groups stated, citing several examples.
The trades closed by saying that they believe that the framework used to set g-fees and LLPAs should be transparent.
“In light of the strong capital requirements established by PMIERs, the credit pricing framework should also fully account for the risk-reducing benefits of MI in the first-loss position, as well as significant improvements in underwriting requirements as a result of the Dodd-Frank Act. The combination of g-fees that have more than doubled since 2011 and the market impact of LLPAs have effectively resulted in many qualified borrowers being priced away from the conforming loan market, undermining the Enterprises’ public mission. The credit pricing framework should not be based on maximizing income to the GSEs, or funding non-housing related government expenditures. Rather, it should provide access to credit for a broad range of borrowers, and promote a ‘liquid and efficient national housing market,’ while maintaining the safety and solvency of the GSEs,” the groups wrote.
Among others singing the joint letter were the ABA, America’s Homeowner Alliance, NAACP, and the National Association of REALTORS.