House GOP presses FHFA chief on new mortgage fees

Lawmakers sparred with Federal Housing Finance Administration Director Sandra Thompson on Tuesday after the agency implemented controversial mortgage pricing updates critics said will punish borrowers with good credit scores.

Thompson told lawmakers on the House Financial Services Committee that the updates do not penalize good-credit borrowers for the benefit of those who are less creditworthy and put up smaller down payments. 

Critics of the changes to loan-level price adjustments (LLPAs), including some Republican lawmakers, have argued these fees will punish responsible borrowers while encouraging others to act irresponsibly amid worsening housing affordability issues. 

They argue the agency is imposing higher fees on more creditworthy applicants so they can undercharge riskier borrowers. 

“What you’re essentially proposing or doing,” Rep. Ann Wagner (R-Mo.) told Thompson, “is taking money from those with good credit that have spent years saving for a home and transferring it to more risky borrowers.” 

“We all agree that there is a housing affordability problem in this country, but it won’t be solved by punishing those who play by the rules and did things right, and none of this will be solved by this unjust socialist-style redistribution of wealth,” she added. 

But Thompson told lawmakers misconceptions about the updated price grid are based on misleading media reports, which rely on the idea that previous pricing was somehow “perfectly aligned with risks” faced by federal mortgage purchasers Fannie Mae and Freddie Mac.  

“I want to be very clear on one key point, and one that bears repeating: Under the new pricing framework, borrowers with strong credit profiles are not being penalized to benefit borrowers with weaker credit profiles,” Thompson told lawmakers in person Tuesday morning. 

“Put another way, even with reduced fees, borrowers with lower credit scores and lower down payments will continue to pay higher overall mortgage costs than borrowers with higher credit scores and higher down payments,” she added. 

Thompson said borrowers with good credit will always pay less than their peers with lower credit scores. 

New fees added upfront to a 30-year loan of $400,000 could tack on an extra $42 per month for borrowers with a credit score above 780, Freddie Mac data showed.  

But experts say higher credit scores will still lead to lower payments, and the new pricing adjustments are not penalizing borrowers with good credit.  

Instead, higher credit borrowers might not get as high of a break as before, while the hit on riskier borrowers with lower credit and lower down payments could be smaller. Thompson added that borrowers with smaller down payments still will pay additional mortgage insurance fees. 

Still, Republicans challenged Thompson over her assertion that the updated grid does not unfairly affect borrowers with high credit scores. Rep. Andy Barr (R-Ky.) argued there were no price increases for borrowers with credit scores of 679 or below. 

“And this is the problem that members have, because our constituents have a problem with this and it may advance a political agenda of equitable housing, but it doesn’t advance the statutory mandate that you as the FHFA director have to promote safety and soundness,” Barr said.  

“So what we think you’re doing here by assessing higher fees on higher credit borrowers, is you’re actually contradicting the statutory mandate to advance safety and soundness and you’re putting taxpayers at risk,” he added. 

The committee’s ranking member, Rep. Maxine Waters (D-Calif.), welcomed the agency’s changes and noted they were a move toward giving borrowers without a 20 percent down payment a shot at homeownership. 

Waters said her colleagues across the aisle are distorting facts about the new pricing grid, adding that the changes will help constituents across the board.  

“My colleagues on the other side of the aisle appear to be more concerned about protecting the wealthy, even if it comes at the expense of those with less intergenerational wealth,” Waters said. 

The FHFA recently rescinded its plan to raise mortgage fees for borrowers with a debt-to-income (DTI) ratio above 40 percent. A person’s DTI ratio is calculated by their pretax monthly expenses compared with their income.   

Borrowers whose DTI ratio landed higher than 40 percent would have incurred an extra 0.375 percent on a loan acquired by Fannie Mae or Freddie Mac.