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  • Loan level pricing adjustment policy rescinded

    Tuesday, May 16, 2023   /   by Amy Brown

    Loan level pricing adjustment policy rescinded


    The Federal Housing Finance Agency made the biggest waves in the housing industry this past week by rescinding its upfront fees based on borrower debt-to-income (DTI) ratios. The implementation of the fees was delayed in March due to heavy pushback from the mortgage industry. The fees (also known as loan level pricing adjustments, or LLPAs) would have been applied to conventional mortgage borrowers with DTI levels at or above 40%. 

    This was a welcome relief to many originators who had argued the fees would make loan origination essentially impossible to implement logistically. There was also quite a bit of heated controversy in the public arena that the new rule would hit well-qualified borrowers with unnecessary punitive fees. 

    Borrowers remain extremely rate sensitive at this time with any dip in rates spurring a flurry of activity. The Mortgage Bankers Association reported a seasonally adjusted 6.3% week-over-week increase in mortgage activity for the week ending May 5. That was the week that saw the 10-year Treasury note yield drop significantly after the Fed’s interest rate hike announcement and the collapse of yet another bank. The MBA’s report showed purchases were up 5% week-over-week. 

    Freddie Mac’s 30-year fixed-rate mortgage average barely shifted week-over-week, falling just 0.04% to 6.35%, but the encouraging part is exactly what Freddie’s analysts noted in their report. They said, “This week’s decrease continues a recent sideways trend in mortgage rates, which is a welcome departure from the record increases of last year. While inflation remains elevated, its rate of growth has moderated and is expected to decelerate over the remainder of 2023. This should bode well for the trajectory of mortgage rates over the long-term.”