Industry Reacts To FHFA’s DTI Rule Change

The Federal Housing Finance Agency has rescinded a rule changing upfront fees based on borrowers’ debt-to-income ratios.

If it had gone through, the policy would have created an adjustment for DTIs higher than 40% that Fannie Mae and Freddie Mac would acquire.

Back in March, the agency delayed the implementation of these fees to talk it through with industry leaders, who largely opposed the move.

One major concern was that small lenders would be hindered by compliance: disclosure laws require lenders to alert borrowers of pricing throughout the application process, but a borrower’s income and expenses can change dramatically throughout the loan procedure, requiring an unmanageable compliance burden.

The Community Home Lenders Association argued against the adjustment at the time, saying elimination of the DTI pricing component would simplify underwriting, clarify pricing for borrowers, and “eliminate unintended incentives for borrowers to take actions like paying down debt to reduce DTI or adding or subtracting borrowers on the loan to obtain better pricing.”

The result ended up in lenders’ favor: FHFA scrapped the rule.

“I appreciate the feedback FHFA has received from the mortgage industry and other market participants about the challenges of implementing the DTI ratio-based fee,” said Director Sandra Thompson.

Industry leaders have applauded the move.

Bob Broeksmit, CMB, President and CEO of the Mortgage Bankers Association, praised the move, calling the fee “unworkable for lenders” and confusing for borrowers.

“We are pleased that FHFA engaged with industry stakeholders, recognized the negative impacts of the fee, and decided to rescind its implementation. MBA urges FHFA to continue its engagement to improve clarity and transparency regarding the GSEs’ pricing framework,” he said.

David Dworkin, president and CEO of the National Housing Conference, concurred. “Today’s decision by the Federal Housing Finance Agency to rescind fees based on a borrowers’ debt-to-income ratio for loans acquired by Fannie Mae and Freddie Mac … will help well-qualified first-time homebuyers whose total debt load approaches the 40% ratio,” he said.

Lawmakers have also lauded the move, with the Chairman and Subman of the House Financial Services Committee releasing statements.

“It’s encouraging to see the FHFA listen to my call to rescind its unworkable debt-to-income ratio-based fee. It was clear from the outset that this upfront fee would hurt future mortgage borrowers,” said Subcommittee Chairman Warren Davidson (R-OH).

The FHFA said it will “provide additional transparency on the process for setting the Enterprises’ single-family guarantee fees” and request further public input on the issues.

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