Trade groups and lenders are lobbying for an alternative that will eliminate DTI-based loan level pricing adjustments.

The Federal Housing Finance Agency’s (FHFA’s) decision to delay implementing the controversial upfront fee on Fannie Mae and Freddie Mac borrowers with higher debt-to-income (DTI) ratios gave mortgage lenders a breather. The agency postponed the implementation of the fee to August 1, and it also said lenders will not be subject to post-purchase price adjustments on any loans acquired by Fannie Mae and Freddie Mac this year. Though it’s undoubtedly a victory for the industry, it’s a partial one. Lenders and trade groups argue that the fee won’t be tenable when it does finally go into effect, whether that’s in May, August or in 2024. The trade groups and lenders are lobbying for an alternative that will totally eliminate the DTI-based loan level pricing adjustments. “While we appreciate the delay, we are disappointed that FHFA’s statement did not recognize the need to consider alternatives to using a debt-to-income pricing adjustment,” Bob Broeksmit, president and CEO of the Mortgage Bankers Association (MBA), said in a statement. The Community Home Lenders Association (CHLA), which represents smaller lenders, also took a similar position — the FHFA should consider a full repeal of the DTI fee. The DTI can fluctuate throughout the mortgage application and underwriting process and the FHFA’s new fees will inevitably lead to borrowers’ costs changing between application and closing, requiring multiple redisclosures that will increase compliance costs and confuse borrowers. “I’m happy with the delay but disappointed that it wasn’t replaced with an alternative,” Bill Lowman, vice chairman of American Pacific Mortgage said in an interview with HousingWire. “I think the industry supports eliminating the DTI-based LLPA,” he said. As applicants – especially self-employed buyers – gather proof of income, the DTI ratio could change from the application to closing. If the lender has to go back to the borrower with a higher rate, it’s going to create trust issues with the consumer, Lowman explained.

Source: HousingWire