Information has never been as accessible as it is today. As cell phones have become compact computers and social media grows, there is no shortage of information. However, the flip side is that there is also more misinformation than ever. The housing industry has been in the spotlight for the last month for various reasons. Let’s clear up a few things:
1. Mortgage Fee Changes
In January of 2023, the Federal Housing Finance Agency (FHFA), announced changes to Loan Level Price Adjustments (LLPAs). LLPAs are based on loan features such as your credit score and the loan-to-value ratio among other things. These LLPA changes were announced in January and took effect May 1st. However, they’ve been heavily misconstrued, leading to myths like:
“620 FICO SCORE GETS A 1.75% FEE DISCOUNT"
"740 FICO SCORE PAYS 1% FEE."
“Borrowers with good credit have to pay more for a mortgage than those with lower credit”
While fees are subject to change, the fees paid by lower-credit borrowers will still remain higher than those of borrowers with stronger credit. To keep it as simple as possible, you are not being punished for having good credit in the form of higher fees.
If you need to understand more of the how and why on LLPAs, here is an article that breaks it down further.
2. I’d like a 40 Year Loan Please
The Federal Housing Association (FHA) announced a final rule that allows mortgagees to increase the maximum FHA-insured mortgage loan modification term from 360 months to 480 months following a default. This change takes effect on May 8th and has gotten a lot of attention on social media. This change only applies to existing FHA loans.
This loan modification was created for borrowers who are unable to pay their existing FHA loans. It is not a new loan program for future homeowners.
3. Fed rates and Mortgage rates are the same? If the Fed rate increase, Mortgage rates increase? Nope.
The Federal Reserve (the Fed) sets the federal funds rate, which is the interest rate that banks charge each other for overnight loans. This rate is used as a benchmark for many other interest rates in the economy. Think short-term money, credit cards, student loans, etc.
Mortgage rates, on the other hand, are the interest rates that borrowers pay on their home loans. Mortgage rates are influenced by a variety of factors, including the overall level of interest rates in the economy, supply and demand for mortgages, inflation expectations, and the creditworthiness of the borrower.
The Fed's actions can influence the overall level of interest rates in the economy, which in turn can affect mortgage rates, but they’re not the same thing. Essentially, the Fed's rate refers to the interest rate that banks charge each other for overnight loans, while mortgage rates refer to the interest rates that borrowers pay on their home loans.
There is a lot of nuance that comes with all three of these topics, but I hope this blog provided some clarity. Don’t fall into the trap of click bait and blood-boiling headlines. As always, if you’d like to talk about this further or anything housing related give us a shout on instagram or here.