Mortgage News February 14, 2023
Lenders were met with yet another obstacle as they reached the end of a challenging 2022. In an already struggling industry, one that adds to the financial pressure. There is no doubt that any increase in financial terms for our industry is detrimental to American homebuyers. This is especially true when the lenders have little or no margin to absorb the increase. The fees for Tier 3 lenders have been increased by 400% by FICO, as most everyone knows.
Who are Tier 3 lenders? Long and short, almost all lenders. Tier 1 consists of 46 lenders and Tier 2 consists of 6 lenders. According to them, the tiers are determined by volume. All lenders, regardless of size, have been charged a $.60 royalty by FICO up to this point. There will be an uneven playing field in 2023 depending on your level.
What is the significance of this issue affecting our industry relating to affordable housing? End users feel the impact of rising production costs as they do with any industry. According to historical data, most affordable housing loans are originated by the IMB sector. Tier 3 is the sector in which most IMBs are located. Consequently, lenders who are not negatively affected may be able to charge less.
It is true that affordable housing has been a problem in America and that it has gotten worse throughout the year 2022. According to Yahoo Money via Black Knight data, affordability has reached its lowest level in 37 years. The income-to-payment ratio was 35.51 percent as of September 2022. According to the article, the income-to-payment ratio is the highest it has been since October 1985, when it was 36.01 percent. The environment is not ideal for increasing production costs.
Is there a reason why FICO is doing this? An Equifax spokesperson said that starting in December 2022, FICO scores will be priced tier-based, similar to other markets such as auto loans, personal loans and credit cards, and based on changes from their third-party supplier’s pricing. Equifax recently informed customers that, based on this change, mortgage industry pricing will be moved to tier-level structures on January 1, 2023. It is tied to the entire mortgage industry to have the new tiered pricing structure.
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