FHFA Hikes Fees For High Balance And Second Home Mortgage. What Does This Mean for The Lending Industry?

FHFA HIKES FEES FOR HIGH BALANCE AND SECOND HOME MORTGAGE

What Does This Mean for The Lending Industry?

Planning to buy a vacation home? Hold that though.

It’s 2022 and in case you haven’t noticed, everything is getting so expensive, and that includes homes, but I bet you already knew that. After all, the prices of homes have been surging since 2010.

The Federal Housing Finance Agency recently introduced new upfront fees for some highbalance and second home loans. The fees will increases between 1.125% and 3.875%, also tiered by the loan to value ratio. The changes to the fees are expected to go into effect beginning April 1, 2022. So what does this mean? If you are trying to secure a loan above the conforming loan limits or buying a vacation home, you need to act sooner to save some extra cash. This pricing increases targets consumers who are applying for the conventional high balance loans and those who want second properties. Just to paint a picture for your perspective, conventional loans in the country make up about 64% of home purchase loans according to the National Association of Realtors.

On the other hand, high balance mortgages are those that have a balance above the conforming loan limits which is set at $647,200 for 2022. After two years, and probably this will be the third year being terrorized by the pandemic, you

may wonder, why has FHFA taken such a drastic measure? The decision by FHFA to raise the fees is a concerted effort to facilitate “equitable and sustainable access to homeownership” while also improving the GSEs “regulatory capital position over time,” FHFA Acting Director Sandra L. Thompson said.

SIMPLY, FHFA RAISED THE FEES IN ORDER TO BOOST ITS CASH RESERVES.

In addition, this increase will help the Agency facilitate homeownership to first time buyers and also reach many low-to-moderate income earners. Furthermore, the agency intends to help these classes of buyers get easy access to credit. The first time buyers in high value zip codes or those living in areas with incomes at or below their area median income will be exempted from the fees.

This new fees also means that the GSEs will lower their fees that many times restrict first time buyers and the low to moderate income earners become homeowners. To ensure that there’s availability of affordable house, this new fee increase does not apply to certain programs by

HOW MUCH ARE THE NEW CONFORMING LOAN FEES

This all depends on the loan-to-value ratio. However, the upfront fees for the high balance loans bought by the GSEs will increase on a tiered scale between 0.25% and 0.75%.

For the second homes, the loans fees will increase between 1.125% and 3.85% and also largely depends on the LTV and will be tiered to it.

In addition, how much of new fees that the lenders are willing to take and how much they are willing to pass on to the borrower depends on the lender, and there is a danger to this where it is highly probable that the lenders will inflate the mortgage rates that they offer on these types of loans to offset their new incurred costs.

And obviously, new incremental fees means higher rates, even without the lenders in play.

ACTION PLAN

Do you want a new second home? Or are looking to get a high value loan this year? Well, apply now before the costs rise. Experts predict that interest rates will be rising quite significantly this year, now imagine that coupled with inflation. Also you need to understand that getting in right now before the fees take effect will come down to individual characteristics and how long it would take from the application of the loan to delivery.

“If it’s a purchase transaction, consumers should be very conscious of the contract settlement date,” said Allied Mortgage Group COO Kyle Manseau.

“And ideally, the industry and lenders need a little bit of buffer from the time a loan funds, to post-close, to prep it for delivery to the GSEs — generally a week or so. Realistically, we’re looking at 30 to 40 days.”

Knowing the deadline is April 1, submitting you application two months prior will allow enough time for the regular processing time. Giving your lender as much lead time as possible will help everyone. There’s no better opportunity than now!