Loan level price adjustments (LLPAs) charged by government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac need to be reduced or eliminated, CUNA wrote to Federal Housing Finance Agency Director Mel Watt this week. CUNA was joined by 24 other groups in stressing to Watt the necessity for eliminating LLPAs.
“Eight years after the financial crisis, mortgage credit quality has improved dramatically and regulations have improved the industries risk management practices,” the letter reads. “We believe these changes justify eliminating LLPAs.”
LLPAs are risk-based fees assessed to mortgage borrowers. They were introduced in 2008, and can vary based on loan features including borrowers’ credit scores, loan-to-value ratios and other risk factors. LLPAs can total up to 4 percent of the loan value for some borrowers.
Credit pricing for the GSEs includes LLPAs, as well as guarantee fees (g-fees), which are primarily to protect against credit-related losses in the mortgage portfolio.
“G-fees have increased sharply since 2009 and, combined with LLPAs, have resulted in substantial gains in the GSEs’ income, without achieving broad access to credit despite the unprecedented liquidity provided by the U.S. Treasury Department and Federal Reserve to Fannie Mae and Freddie Mac,” the letter reads. “No borrower should face arbitrarily high prices for mortgage credit, especially when the burden is felt particularly hard by low- and moderate-income and first-time homebuyers.”
The letter goes on to cite a number of developments since 2008, developments that have increased mortgage quality and reduced GSE risk, supporting CUNA’s recommendations to reduce or eliminate LLPAs.
These developments include:
CUNA and the other organizations also pushed for increased transparency for the framework used to set g-fees and LLPAs.