There has been a delay, but it hasn’t been enough for the mortgage industry. In a blog post published on Thursday, mortgage bankers association (MBA) President and CEO Bob Brockschmidt made the case that federal housing finance agencyThe (FHFA) loan level value adjustment (LLPA) related to a mortgage borrower’s debt-to-income (DTI) ratio is impractical and should be eliminated entirely.
Thank you for reading this post, don't forget to subscribe!The FHFA argues that the change to the upfront fee on borrowers with a DTI of 40% or more will make GSEs more “safer and healthier” and help them fulfill their mission of advancing equitable and sustainable access to homeownership.
“Just about everyone agrees that these are worthy goals, but setting up a DTI-based LLPA is an inappropriate way to achieve them,” Brockschmidt argued. “There’s a reason why the modified general qualified mortgage (QM) definition doesn’t include the DTI ratio: Studies show that as a stand-alone measure, the DTI is not a strong indicator of a borrower’s ability to repay.”
Advance pricing charges on DTI ratios of 40% or more – part of a larger series of changes to the pricing grid of enterprises – were set to take effect on May 1, 2023. But the DTI part of the change in pricing grid has been pushed back to August 1, 2023, with the regulator saying the DTI fee will not affect any loans bought by them fannie mae Or Freddie Mac In 2023.
Mortgage industry trade groups like the MBA say the new deadline helps, but it doesn’t fix an intractable problem that represents both a logistical nightmare and confusion for the customer.
“To start with, linking an LLPA to the DTI ratio will create a number of operational issues and compliance challenges, and also lead to a frustrating and confusing borrower experience,” said Broxmit. “Furthermore, a DTI-based LLPA would create costly post-origination quality control disputes between lenders and GSEs. A borrower’s income and expenses can change many times during the loan application and underwriting process. This is especially important in today’s labor market. This is largely true, shaped by an increase in self-employment, part-time employment, and “gig economy” employment.
Broeksmit said expenses can fluctuate greatly because some items are not on the credit report (child support or alimony is one example) and others are estimated at application but may change at closing, such as the HOA. Dues, hazard insurance and property taxes.
“Imagine being a borrower who is quoted a rate when applying for a loan, then getting close to closing and hearing from their lender that, say, a slow month at work or due to home owner’s insurance premiums Because, the cost of your loan will go up because you have crossed the FHFA’s DTI limit,” he said, adding that this would delay the foreclosure by a minimum of three days.
Moreover, said the top MBA executive, these logistical problems created by the FHFA will extend well into the post-closing process.
“Repurchase requests from the GSE are already on the rise – most of these disputes relate to the calculation of income because the GSE’s rules for counting certain sources of income toward “qualifying” income are confusing and inconsistently interpreted. The new DTI charges will mean that lenders will see many more ‘defects’ for minor calculation ‘errors’ in the DTI ratio.
Top FHFA officials have said they are listening to industry concerns, but to date have not indicated they are willing to increase DTI-related upfront fees.
