On October 24, the Federal Housing Finance Agency (FHFA) announced that it is eliminating upfront loan guarantee fees charged by Freddie Mac and Fannie Mae (the Government-Sponsored Enterprises, or GSEs) for eligible borrowers and certain GSE-backed single-family loans. The goal of this change is to promote equitable access to affordable homeownership. The new FHFA policy would apply to first-time homebuyers earning up to 100 percent of their area median income (AMI) in most areas of the United States, as well as homebuyers earning below 120 percent of AMI in specific high-cost areas. FHFA is also eliminating upfront guarantee fees for GSE-backed affordable mortgage products, including the GSEs’ low down payment mortgages and GSE-backed loans that support the Duty to Serve program.
This policy change builds on the upfront fee increases for second home loans and certain high-balance loans announced by FHFA earlier this year. It will also be accompanied by targeted increases to the upfront fees for most cash-out refinance loans starting February 1, 2023. Additionally, on October 24, FHFA announced that the agency is transitioning the credit scoring framework for the GSEs to the FICO 10T and VantageScore 4.0 models for assessing borrowers’ qualification for GSE-backed loans. These two credit models include new payment history information when available, such as rent and utilities payments. Including these data points in mortgage underwriting will help households with no credit history or low credit scores qualify for GSE-backed home mortgages by building sufficient credit scores based on on-time rent and utility payments. This issue predominantly impacts households of color, who are more likely to be renters than white household, and often aren’t able to build sufficient credit scores to qualify for financing under traditional credit scoring models.