FHFA Announces Adjustments to Mortgage Fees on Government-Backed Loans

Starting next month, Freddie Mac and Fannie Mae will implement changes in their fee structure on mortgages to promote more affordable homeownership. In general, fees will decrease for individuals with lower credit scores, and fees will increase for those with higher credit scores. However, having a lower credit score will now come with less of a penalty. It is important to note that this does not necessarily mean that people with lower credit scores will pay less than those with higher credit scores, but rather that higher credit scores are associated with lower risk to lenders, and thus, lower fees.

The cost of a home loan is determined by various factors, including the property type, down payment, and credit score. Government-backed Freddie and Fannie, which purchase most loans from lenders, use loan level price adjustments (LLPA) to price loans based on risk. The FHFA, which oversees Freddie and Fannie, increased fees last year on loans with less reason for government support, including high balance loans, vacation homes, and investment properties. The FHFA announced in October the elimination of upfront fees for certain borrowers and affordable mortgage products while putting in place increases in other fees.