New Loan Level Price Adjustments - how does it impact you?

[Zach Wain]

The Federal Housing Finance Agency, FHFA, the governing body that controls the conventional loan world.  Think of them as the parent of Fannie Mae and Freddie Mac.  They have set multiple new pricing grids for all conventional loans, and these pricing grids directly impact mortgage rates.  This is effective on all loans purchased by 5/1/23, so lenders may start implementing this in March or April.  FHFA changed the entire pricing grid, so while there are many many changes, here are some of larger highlights.  This only applies to conventional loans.

First, No significant pricing changes to:

1) Purchase/non cash out investment home or second home pricing

2) Purchase/non cash out Condo's

3) Purchase/non cash out of Manufactured homes

4) Subordinate financing hits (when you have a 1st and 2nd mortgage at the same time, there is price hit on the first mortgage)

Next, some of the larger changes to pricing:

1) Worse - Cash out got WAY WAY more expensive, especially over 70% loan to value and especially if your credit score is under 780.  For example, a cash out refi to 80% loan to value with a 680 credit score is going to be brutal...

2) Worse - High balance/super conforming loan sizes - got more expensive. Especially for ARM's and cash out. Like really crazy expensive. (this does not make sense to me, because these are high cost areas to live in, so they get a higher max loan size to stay conventional. These are not the uber wealthy, but they are getting hit big time now)

3) Worse - Your average borrower with a 720-759 credit score is paying more now

4) Worse - If your debt to income ratio is over 40%, you pay more now (silly rule, if we pre approve someone at 39% DTI but the underwriter changes it to 40%, now that borrower pays more.)

5) Better - 2-4 unit homes, pricing is a touch better now.  That is nice for investors.

6) Better -  borrower with a 620-699 credit score is paying less 

7) Better - 1st time home buyers within the area median income of their county get a better deal now (this went into effect a couple months ago)

There are a lot more small changes in these pricing grids, but overall I interpret this as the FHFA saying they want to make loans more expensive for anyone that has a home already or lives in a high cost area.  They want it to be more affordable for 1st time home buyers.  By looking at the numbers, I am also assuming that they want to improve the reserves of Fannie Mae and Freddie Mac so they can be in position to one day be independent of the Federal Government and end their Sponsored entity status.  That is just my personal opinion based on the recent moves...