MBA Urges FHFA The Removal Of DTI-Based LLPA

Mortgage News February 15, 2023

The Federal Housing Finance Agency (FHFA) was called on by the Mortgage Bankers Association (MBA) to remove in Fannie Mae and Freddie Mac‘s pricing framework the addition of a level pricing adjustment (LLPA) to the debt-to-income loan.

The FHFA made LLPA fee changes in January by revamping the matrix to differentiate pricing by loan purpose, with grids for purchase loans, limited cash-out refinances, and cash-out refinances. The MBA and National Association of Realtors pushed back against such changes, saying it could increase overall pricing and could negatively impact middle-class homebuyers.

New pricing adjustments for borrowers with a DTI ratio over 40% are part of the litany of pricing changes set to take effect on May 1. The mortgage industry has been upset by this particular LLPA.

MBA’s president and chief executive officer Bob Broeksmit said the DTI ratio does not accurately reflect a borrower’s ability to repay, as reflected in the revised general qualified mortgage definition. Also included in the letter are concerns regarding quality control and operational issues for lenders involved in LLPAs linked to DTI.

As income and expenses are later verified during underwriting, the DTI ratio can fluctuate as income and expenses disclosed during application processes change.

A borrower’s loan price could change multiple times during the underwriting process, resulting in difficult compliance challenges because lenders must determine whether such changes constitute valid changes in circumstances under TILA-RESPA Integrated Disclosure (TRID) — potentially requiring redisclosures and delays.

According to the letter, quality control activities post-closing could also present problems.

According to the MBA, Fannie Mae and Freddie Mac are asking lenders “a rising number” of questions about income calculations when repurchasing mortgages.

Bringing a small group of lenders together to examine the difficulties of implementing a DTI-based LLPA is Brokesmit’s recommendation.

MBA aims to work with Fannie Mae and Freddie Mac to find “alternative approaches” to mitigate their exposure to high DTI ratios while minimizing hardships for both.

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