On May 1, 2023, the Federal Housing Finance Agency (FHFA) implemented a new fee structure affecting most mortgage borrowers. Fees were reduced for borrowers with credit scores below 680 and increased for some with higher credit scores.
The fee changes lay in alterations to loan-level price adjustments (LLPAs), calculations that individualize borrower rates. Decreasing LLPAs for low-credit borrowers is part of making mortgages more accessible to those who might otherwise struggle to qualify for a loan.
How Will This Impact Borrowers?
The new rules will affect borrowers with mortgages backed by Fannie Mae and Freddie Mac. FHA and VA mortgages are exempt, as are non-conforming loans.
Borrowers with low to mid-range credit scores benefit the most. For example, before May 1, the FHFA levied a 2.75% fee on borrowers with credit scores between 640 and 659 who financed 75% of the home's value. With the recalibration, the same borrowers now pay 1.5%. The dramatic decrease lets new homebuyers enter the market at favorable rates.
Many borrowers with higher scores are impacted negatively. For instance, those with credit scores between 720 and 739 should expect a 1.25% LLPA on a 20% down payment, a 0.5% increase from previous LLPA rules. This adjustment is similar to the effect that typical rate hikes would have on borrowers in this tier.
There are also homebuyers with high credit scores who will see no LLPA change and some who will see a slight improvement. Homebuyers with 780 or above credit scores and 20% down payments have had their LLPAs decline by 0.125 percentage points.
How Will This Impact Originators?
As an originator, you must contend with updated mortgage rates in 2023 and ensure you're utilizing the most up-to-date pricing. A mistake could destroy your credibility.
With the new rates comes the need to explain LLPAs in a way that borrowers can comprehend. You may encounter homebuyers familiar with the old rate structure and need help understanding why their rate has changed. It's your responsibility to educate them so they see why the new rates are beneficial. You may also deal with angry borrowers who feel wronged by the changes. To avoid such situations, be transparent and proactive from day one.
Remembering the latest mortgage rates news is another step in the ever-fluctuating game. The ability to remain agile and adjust accordingly is essential to succeeding in our industry.
Secure a brighter future for both your borrowers and your bottom line. Schedule a demo today to discover how Sonar is revolutionizing the origination process.
Stay Competitive with the Right Tools
Incorporating modern technology into your origination strategy gives you a distinct advantage over lenders and brokers who still rely on manual methods, especially when new policies are introduced.
The right mortgage platform integrates a reliable product pricing engine (PPE) into your point of sale (POS) and loan origination system (LOS). Your PPE will be updated in real time, giving you the most up-to-date mortgage rates. Updating the systems manually would be far less efficient.
A reliable PPE lets you offer fast, accurate quotes while complying with regulatory changes. The data accumulated by your LOS should let you generate detailed reports to analyze borrower scenarios and determine which loan product best suits their needs.
Sonar: Modern Technology for Modern Origination
Sonar is an integrated LOS, POS, CRM, and PPE solution that instantly adjusts to new market conditions. When you use Sonar, you can quickly respond to new regulations and policies when they arise. The platform uses intelligent mortgage automation to help you remain competitive, efficient, and compliant.
With Sonar, you can offer seamless borrower experiences with lightning-fast loan decisions and customizable pipelines that fit into your existing operations. Sonar puts you ahead of industry trends. The platform’s comprehensive solution takes the guesswork out of mortgage origination, providing you with current mortgage rates and helping you find the best loan product.
Witness firsthand how an all-in-one mortgage solution can transform your origination process. Request a demo today!
