(Jan. 28, 2022) The Federal Housing Finance Agency (FHFA) recently announced increases to Fannie Mae and Freddie Mac’s upfront fees for certain high-balance and second-home loans.
High balance loans are mortgages originated in certain designated areas above the baseline conforming loan limit. The changes will go into effect on April 1, so if you’ve been thinking of getting a new loan, many mortgage lenders are saying—act now.
Upfront fees are premiums added to the cost of a loan to account for higher risk scenarios. Though the name implies they are paid “upfront” when the loan is initiated, they are more typically reflected in the interest rate you pay.
The exact amount depends on your loan-to-value ratio (LTV) – the amount of the loan as a percentage of the property’s value. A higher LTV will incur a higher fee, as it represents a greater risk. In other words, the more money you put down the lower the upfront fee premium will be.
The FHFA is imposing fees ranging from 0.25 to 0.75 percent for high-balance loans and 1.125 to 3.875 percent for second-home loans. As an approximate example, a fee of 0.75 percent will often translate to a mortgage rate that’s 0.25 percent higher.
Generally speaking, the fee structure will apply to all second-home loans (homes not used as a primary residence and a large percentage of the inventory in northern Worcester County).
High-balance loans will be impacted, but to ensure strong support for affordable housing, the existing beneficial pricing treatment of certain programs – such as HomeReady, HomePossible, HFA Preferred, and HFA Advantage – will not be altered by the new fees. Privately held mortgages are not affected by these fee increases.
FHFA set an objective in their 2022 Scorecard for Fannie Mae and Freddie Mac to update the current pricing framework to “increase support for core mission borrowers, while fostering capital accumulation, achieving viable returns, and ensuring a level playing field for small and large sellers,” Acting Director Sandra L. Thompson said.
“Today’s action represents another step FHFA is taking to strengthen the enterprises’ (Fannie Mae/Freddie Mac) safety and soundness and to ensure access to credit for first-time home buyers and low- and moderate-income borrowers,” Thompson added.
Lauren Bunting is a licensed Associate Broker with Atlantic Shores Sotheby’s International Realty in Ocean City.