When the ‘Ability To Repay’ portion of the Dodd Frank regulations was written, the focus was to ensure the solidity of mortgages and the secondary mortgage market, and to provide loans to qualified borrowers. The current political emphasis is on reducing costs and lowering rates for borrowers with lower quality profiles, offset by increasing costs and rates for well-qualified individuals.
The heatmap reflects the corresponding loan-to-values (top line) and credit scores (left column). Red areas indicate higher rates, while green areas indicate lower rates. This doesn’t imply that lower quality borrowers will pay less than better-qualified borrowers, but rather that the difference will be smaller.
These changes only apply to Fannie Mae and Freddie Mac’s new Loan Level Price Adjustments (LLPAs), which will impact most loans in the US. They are significant and affect various aspects of the loan approval process, including credit scores, loan-to-value ratios, occupancy status, and debt-to-income ratios. Non-Conforming Loans, FHA, and VA loans are not affected by these changes. Technically, the changes will take effect on May 1, 2023, but most wholesale lenders have already been using the new pricing for the past month.
One of the most notable changes is the introduction of a new fee for debt-to-income (DTI) ratios. Every loan guaranteed by the agencies will have a DTI attached to it. If the DTI is over 40% and the loan exceeds 60% of the home’s value, the borrower will pay more.
These changes are interesting because, even with the lower cost, I would generally find better rates for a marginal borrower with an FHA loan.
Many realtor and lending associations are pushing back against these changes, but this is a political matter. Although Freddie and Fannie generate billions of dollars in annual revenue and could afford to implement lower fees without charging good quality borrowers, it doesn’t align with the current political narrative. Since the government took control of Freddie and Fannie through Conservatorship after the Sub-Prime Mortgage Crisis, they have become accustomed to receiving the income.
If you are in the Los Angeles area, and have any questions or real estate sales or financing needs, feel free in contacting me
Ron Henderson GRI, SRES, SFR, RECS, CIAS
President/Broker
Multi Real Estate Services, Inc.
Gov’t Affairs Chair – California Association of Mortgage Professionals (2017-2018)
Chairman – OutWest Marketing Meeting (Real Estate Education)
BRE #00905793 NMLS #310358
www.mres.com
ronh@mres.com
Specialist in the Art of Real Estate Sales and Finance
Real Estate market, mortgage rates, Los Angeles, San Fernando Valley, Conejo Valley, Simi Valley, Woodland Hills, West Hills, Calabasas, Chatsworth
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