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Fannie and Freddie are changing some rules that could make home loans more expensive for people with high credit scores, and less expensive for those at the low-end of that spectrum. Critics say the rules amount to an unfair subsidy for high-risk borrowers, but the GSE\u2019s say it\u2019s a misconception about what they are changing. \xa0 Hi, I'm Kathy Fettke and this is Real Estate News for Investors. Please remember to subscribe to this podcast and leave us a review. \xa0 You may have seen the headlines already. One says: \u201cA Bigger Subsidy for Risky Mortgages.\u201d Another says: \u201cUpside Down Mortgage Policy.\u201d Another says this new policy will \u201cscrew Up the Homebuying Market.\u201d \xa0 The headlines refer to a new rules from the Federal Housing Finance Agency regarding loan-level price adjustments or LLPAs for conventional loans. They officially kick in on May 1st, although some lenders have already been incorporating them into their fee structures.\xa0 \xa0 What\u2019s an LLPA? \xa0 If you have a mortgage that\u2019s backed by Fannie or Freddie, you have paid or are paying this fee. LLPAS are fees that the government-sponsored enterprises charge when they buy loans from lenders. The fee is passed on to borrowers as a percentage of the loan and the amount is based on the borrower\u2019s risk factors such as credit score and down payment. People with higher risk factors pay higher LLPAs, and they can be paid up front or with higher monthly mortgage payments.\xa0 \xa0 Business Insider offers a few examples of how the new pricing structure will impact borrowers.\xa0 \xa0 1 - Someone who might see an increase could have a credit score of 700 with a 20% down payment for a $300,000 loan. They would have previously paid 1.25% of that loan amount or $3,750. With the new fee structure, they\u2019d pay 1.375% or $4,125, which is an increase of $375. (1) \xa0 2 - Someone who might see a decrease could have a credit score of 780 but a down payment of just 3%. Previously, they would have paid .75% on a $300,000 loan or $2,250. With the new rules, they\u2019d pay .135% or $375. That\u2019s a $1,875 reduction. \xa0 NAR, NAHB Opposed to the New Rule \xa0 The National Association of Realtors is among those criticizing the rule change. It is encouraging the FHFA to rescind the new rule especially given the affordability issues facing home buyers. It suggests instead that: \u201cThe GSEs could simply reduce the fees for (higher risk) borrowers and maintain the others at the same cost\u2014especially given the sharp decline in affordability over the last year.\u201d (2) \xa0 National Association of Home Builders CEO, Jerry Howard, told Newsweek: "In the short term, this may increase homeownership among the targeted group, but I'm afraid it could decrease homeownership among the middle class. I'm not sure that we're not robbing Peter to pay Paul here." (3) \xa0 FHFA Defends New Rules \xa0 FHFA Director Sandra Thompson issued a press release this week to \u201cset the record straight.\u201d She says: \u201cMuch of what has been reported advances a fundamental misunderstanding about the fees charged by the GSEs and why they were updated.\u201d She says the pricing structure hadn\u2019t been updated for many years, and the new pricing structure is the result of a 2021 review. (4) \xa0 The goal: \u201cTo maintain support for purchase borrowers limited by income or wealth, ensure a level playing field for large and small lenders, foster capital accumulation at the Enterprises, and achieve commercially viable returns on capital over time.\u201d \xa0 The overhaul has been done in steps over the last 18 months, beginning with fee increases for loans on second homes, high balance loans, and cash-out refi\u2019s. Then some fees were eliminated for first-time homebuyers with lower incomes but the means to meet their loan obligations. She says in her statement that this latest step is a recalibration of upfront tees that will make the housing finance system more resilient. \xa0 Among the misconceptions, she says: \xa0 1 - Stronger credit borrowers are not subsidizing weak credit borrowers. She claims that fees generally increase for lower credit scores, despite the down payment. \xa0 2 - She says the new fee structure does not raise the fees for all low-risk borrowers. She says many borrowers with high credit scores or high down payments will see no change in their fees or even a decrease. \xa0 3 - She says the old framework was not perfectly calibrated to risk. She says it was essentially outdated, and is now better aligned for the performance of a mortgage relative to its risk. \xa0 4 - The new rules do not encourage low-income borrowers to pay a lower down payment to benefit from lower fees because they will also have to pay mortgage insurance premiums. \xa0 5 - The elimination of upfront fees is not for people with lower credit scores but for borrowers with lower incomes, and she says they are essentially supported by the loan fees for second homes and cash-out refi\u2019s (and not by good credit, high down payment borrowers). \xa0 6 - The changes are not intended to stimulate mortgage demand, but rather to advance the soundness and safety of the GSE\u2019s. \xa0 The old and new fee structures are listed on the Fannie Mae website. You\u2019ll find links to those tables in the show notes if you\u2019d like to compare. (5) (6) \xa0 Impact on Real Estate Investors \xa0 So how does this impact real estate investors? \xa0 Shawn Huss of Warsaw Federal told RealWealth: \u201cFor investment lending, it has helped out in some situations with better pricing when you have a greater down payment or a two to four unit. For a multi-unit, Fannie used to charge 1.0 points in additional pricing. Now if an investor\u2019s credit score is 780 or higher, it is only .375%. Another example is pricing used to be 2.125 points in pricing for 70% loan-to-value.\xa0 With the new pricing, at 70%, the pricing is better by .50 points which helps with lower rates.\u201d \xa0 The new pricing structure only impacts conventional loans \u2013 not jumbo loans, FHA mortgages, or other non-conforming loans. \xa0 You\u2019ll find links to the stories I mentioned at newsforinvestors.com including the charts from Fannie Mae where you can compare the two pricing structures. \xa0 And please, remember to hit the Join for Free button at RealWealth and subscribe to our podcast. \xa0 Thanks for listening, Kathy \xa0 Links: \xa0 1 - https://www.businessinsider.com/personal-finance/biden-fhfa-new-mortgage-fee-structure-2023-4 \xa0 2 - https://www.nar.realtor/washington-report/nar-advocates-for-fhfa-to-maintain-affordability-for-all-homebuyers \xa0 3 - https://www.newsweek.com/biden-raises-costs-homebuyers-good-credit-help-risky-borrowers-1795700 \xa0 4 - https://www.fhfa.gov/Media/PublicAffairs/Pages/Statement-from-FHFA-Director-Sandra-Thompson-on-Mortgage-Pricing.aspx \xa0 5 - https://singlefamily.fanniemae.com/media/33201/display \xa0 6 - https://singlefamily.fanniemae.com/media/9391/display