To the relief of many, the Federal Housing Finance Agency (FHFA) has canceled plans to change mortgage fees for people with a certain debt-to-income ratio.
This fee was supposed to be levied on specific borrowers. Debt to income (DTI) ratio 40% or more. DTI is the portion of your monthly pre-tax income that is spent on regular debt payments such as mortgages, rent, and credit card balances. The new fee was due to go into effect on May 1, along with other changes based on credit scores and loan size, but was postponed to August 1 and scrapped Wednesday due to industry backlash.
“It was clear from the beginning that this upfront fee would hurt future mortgage borrowers,” said Warren Davidson, an Ohio legislator and chairman of the Housing and Insurance Subcommittee.
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How do DTI ratio fees hurt borrowers?
Borrowers with a DTI ratio above 40% had to pay an additional 0.375% fee on mortgages purchased by Fannie Mae and Freddie Mac.
∙ For a $300,000 loan, the upfront fee equals $1,125. Alternatively, if the borrower is unable to pay it and chooses a higher interest rate instead, it will cost an additional $24.75 per month. Over 30 years would cost him an additional $8,910.
Robert Burksmidt, chairman and chief executive of the Home Loan Bankers Association, a trade group, said the DTI ratio by itself is not a strong indicator of a borrower’s ability to repay loans.
“There’s also the issue of unfairness,” said Andrew Ryan, sales operations manager at Cornerstone Home Lending in California. “Even if a couple has a near-perfect credit score, no credit card debt, and pays their bills on time, they could still have a DTI ratio of 41%, even though they’re not at fault. Yes, and you have to pay a fee,” he said. “He has an even higher DTI ratio because of the fees.”
Other agencies, such as the Department of Veterans Affairs, the U.S. Department of Agriculture, and the Federal Housing Administration, allow DTI rates of 50% without mortgage fee adjustments, Ryan said. “So the FHFA[loans]for Freddie and Fanny are not keeping pace.”
![The Federal Housing Finance Agency has withdrawn plans to change mortgage fees for people with a certain debt-to-income ratio.](https://www.gannett-cdn.com/presto/2021/08/24/USAT/8ff71e6b-e261-4f6d-aa38-f9567e0a6d3a-GettyImages-1253515007.jpg?width=660&height=471&fit=crop&format=pjpg&auto=webp)
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How have DTI ratio fees hurt lenders?
“Incomes and expenses can change many times throughout the lending process, especially given the evolution of assumptions regarding the nature of debt and income, self-employment, part-time employment, and growth in ‘gig economy’ employment. ” Brooksmitt wrote In a letter to FHFA director Sandra Thompson in February, he said:
These changes may change the DTI ratio and may result in multiple changes in borrower loan prices. And that can make compliance with rules on refinancing difficult and delay the loan closing process.
Brooksmit also said lenders were “concerned that multiple pricing changes could undermine borrowers’ confidence and lead to the emergence of ‘bait and switch’ when presenting loan prices.” .
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what’s next?
Concerns over the DTI ratio fee have now subsided, but concerns remain over the change in fees based on credit scores and down payment amounts that went into effect on May 1.
These price changes caused some people with high credit scores to pay more than they did before May 1, but less than those with low credit scores. Penalties for low credit scores have been reduced from before May 1st.
“Congress will take steps in the future to eliminate this tax on creditworthy borrowers,” said Rep. Patrick McHenry of North Carolina and chairman of the House Financial Services Committee. rice field.
Some legislators are considering removing these fees, but the FHFA said it is currently in further discussions with industry officials about setting the fees and gathering public input. He said he would soon provide details on a future request for views on the tariff-setting framework.
Medora Lee is USA TODAY’s Money, Markets and Personal Finance Correspondent. Please contact mjlee@usatoday.com. Subscribe to our free Daily Money newsletter for personal financial tips and business news every Monday-Friday morning.