FHFA Backpedals on DTI LLPA

The Federal Housing Finance Agency (FHFA) has decided to rescind a loan-level pricing adjustment (LLPA) for conventional borrowers with debt-to-income (DTI) levels at or above 40%. The controversial fee had been slated for implementation on May 1, 2023, but the FHFA delayed it to August 1, 2023, following pushback from industry stakeholders. 

The FHFA faced a barrage of complaints about the fee, due to the fact that many middle income borrowers would be paying higher rates. No LLPA fee elicited a stronger response than the new DTI requirement. Lenders argued this could result in borrowers potentially paying higher rates and/or fees due to the fact that often times borrower income calculations change throughout underwriting process. There could be inadequate time for changes to the loan’s terms if new information came in later in the process.

FHFA Director Sandra Thompson announced that the agency would provide more transparency on the process of setting the guarantee fees and seek public input on the issue. The FHFA has also issued a request for information on other new fees, including those for borrowers with higher credit scores and moderate down payments.

Days before the DTI fee was killed, National Housing Conference President and CEO David Dworkin argued that the FHFA’s risk-based pricing model was antiquated and had outlived its purpose. Dworkin called for a fair playing field for first-time homebuyers across all income levels, urging Fannie Mae and Freddie Mac to charge the same fee for everyone, as was the practice between 1938 and 2008, and as FHA loans do today.

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