The Federal Housing Finance Agency (FHFA) made an announcement on May 10, 2023, stating their decision to cancel the scheduled implementation of Loan Level Price Adjustments (LLPA) for Debt to Income (DTI) ratios exceeding 40%. Following that, on May 15, 2023, the FHFA issued a Request for Input (RFI) regarding the pricing framework for single-family loans of Fannie Mae and Freddie Mac (referred to as the Enterprises).
The FHFA is seeking input regarding the procedure for determining the upfront guaranteed fees and whether it remains suitable to link them with the Enterprise Regulatory Capital Framework (ERCF), which was implemented in 2020. The FHFA requests feedback on this matter by August 14, 2023.
LLPAs are designed with a risk-based approach to ensure that the pricing structure effectively safeguards both enterprises and taxpayers from potential future losses. They also contribute to the promotion of affordable, sustainable housing options and assist first-time homebuyers while facilitating liquidity in the secondary mortgage market.
The primary purpose of the upfront guaranteed fees is to encompass the Enterprises’ administrative costs, anticipated credit losses, and the capital costs associated with guaranteeing securities backed by single-family mortgage loans.
The implementation of this Loan Level Price Adjustment (LLPA) would have an impact on a significant number of low to moderate-income first-time homebuyers.