Lower mortgage fee will help some buyers with Fannie and Freddie loans

Home prices were up in February for the first time in eight months, according to the latest S&P CoreLogic Case-Shiller U.S. National Home Price Index.

Also, the number of new home sales was up almost 10% in March from the month before, the U.S. Census Bureau and the Department of Housing and Urban Development reported Tuesday.

Two data points do not make a trend, but we can infer that the housing market’s still tight. Supply is low. Prices and mortgage rates are still high, so affordability is a challenge.

Starting May 1, though, conditions will ease just a bit for some low- and middle-income buyers because mortgage fees for loans backed by Fannie Mae and Freddie Mac are changing. But what does this all mean for house hunters?

When most people think about buying a home, they tend focus on two expenses: their down payment and their monthly mortgage payment. But Jenny Schuetz at the Brookings Institution said there are a whole bunch of other fees.

“Some go to the lender. You pay things like broker’s fees that go to the realtor. You pay closing costs, which go to cover a variety of things like title insurance,” she said.

And those costs can add up to thousands of dollars.  

“For people who are stretching to make the down payment and get in, this can be a hurdle,” Schuetz said. Sometimes, this is the hurdle that prevents them from buying. The Federal Housing Finance Agency is trying to change that equation.  

That’s why it’s changing one of those fees called loan level price adjustment for the more than half of buyers who get loans backed by Fannie and Freddie.

The fee will go down for buyers with smaller down payments and buyers with lower credit scores.

“Those two changes together will have a major impact on the affordability for borrowers, particularly those with low and moderate incomes,” said Vanessa Perry from George Washington University School of Business.

“And that really matters in the current price environment where house prices are so high and have essentially skyrocketed over the past few years,” she said.

This change is designed to save lower-income buyers money, according to Mitria Spotser at the Center for Responsible Lending — often a few thousand dollars’ worth, which is enough to make the difference for some people.

“It expands access by making homeownership more accessible to a broader scope of folks,” she said.

As part of this change, buyers with very high credit scores and more money to put down will see their loan level price adjustment go up slightly starting in May. However, they’ll still be paying a smaller percentage overall.