A year-old 15-basis point surcharge adds to the cost of using a broker rather than borrowing directly from a lender’s retail outlet.
By JEFF LAZERSON | email@example.com | MortgageGrader.com | September 19, 2022
* Article originally posted in Orange County Register on September 15, 2022
As a mortgage broker, I’m clearly biased in favor of my profession.
I’ve often argued that mortgage brokers (called third-party originators or TPO’s) provide a better service for borrowers than they can get going directly to a lender’s retail outlet.
So, please indulge me as I get on my mortgage broker soapbox once again.
My grievance this week has to do with Fannie Mae’s 15-basis point surcharge for mortgage broker loans.
The fee went into effect in July 2021, generating $279 million during the last half of the year, according to Willie Newman, CEO and president of Home Point Capital.
I’ve been unable to locate an explanation for this fee. I reached out to Fannie Mae, Freddie Mac, the Federal Housing Finance Agency (Fan and Fred’s regulator and conservator) and to Mark Calabria, FHFA’s director at the time the fee was proposed. I’ve yet to get a response.
I submit this fee is unfair.
Soon after the mortgage meltdown and housing crash of 2008, new rules took effect to ensure there’s no favoritism or pricing penalties based on the type of loan originator, according to Dave Stevens, retired Mortgage Bankers Association president.
In essence, FHFA wanted a level playing field for all mortgage originators, Stevens said. Volume-based pricing incentives to the big banks became history.
But Calabria changed what’s known as the “capital framework requirements,” allowing Fannie and Freddie to charge mortgage brokers 15 basis points more for loans than are paid by retail banks. The fee applies even though the loans are identical in all other respects.
Calabria’s successor, Sandra Thompson, implemented the fee last summer.
Fifteen basis points is the equivalent of 0.15% of a loan.
So, that’s a fee of $971 on a $647,200 “conforming loan” in Riverside and San Bernardino counties; and a fee of $1,456 on a $970,800 “high-balance loan” in Los Angeles and Orange counties. For the most part, mortgage brokers can’t pass this directly to their clients.
A year after this took effect, an MBA affiliate finally squawked.
This fee “leads to unintended and inappropriate pricing distortions, which creates an unlevel playing field among lenders and simultaneously harms borrowers,” a statement by the MBA-affiliated Mortgage Action Alliance said.
“There is a broadly held view among policymakers that (Fannie Mae and Freddie Mac) should not discriminate in pricing based on loan volume, charter or business,” the statement said.
Some industry professionals argue further that this fee hurts minority borrowers since mortgage brokers account for almost twice as many minority loans on a percentage basis as non-bank retailers.
Newman, the Home Point Capital CEO, presented data to Thompson last April showing 30% of loans handed by the top 10 lenders working with mortgage brokers went to minorities, vs. 18% of loans handled by non-bank retailers.
If a bank or other mortgage provider did anything like this, it would be tarred and feathered, shamed, cited and fined by regulators for having a disproportionate impact on protected groups.
“Diversity of our mortgage market is one of our strengths,” said Pete Mills, senior vice president residential policy and member engagement at MBA. “Fannie and Freddie shouldn’t price differently (by channel).”
Thompson could easily stop this pricing prejudice with a simple decision.
I submit it hurts minority and low-income borrowers. It creates an uneven playing field. The consumer’s best protection is access to a wider variety of mortgages and industry competition.
Freddie Mac rate news: The 30-year fixed rate averaged 6.02%, 13 basis points higher than last week and rising above 6% for the first time since the 2008 housing crash. The 15-year fixed rate averaged 5.21%, rising 5 basis points from last week to the highest level since December 2008.
The Mortgage Bankers Association reported a 1.2% decrease in mortgage applications from the previous week.
Bottom line: Assuming a borrower gets the average 30-year fixed rate on a conforming $647,200 loan, last year’s payment was $1,209 less than this week’s payment of $3,889.
What I see: Locally, well-qualified borrowers can get the following fixed-rate mortgages without points: A 30-year FHA at 5.5%, a 15-year conventional at 5.375%, a 30-year conventional at 5.875%, a 15-year conventional high-balance ($647,201 to $970,800) at 5.875%, a 30-year conventional high-balance at 6.375% and a 30-year purchase jumbo at 5.625%.
Eye catcher loan of the week: A 30-year jumbo mortgage locked at 4.615% for the first five years, with 1 point cost.
Jeff Lazerson is a mortgage broker. He can be reached at 949-334-2424 or firstname.lastname@example.org. His website is www.mortgagegrader.com.
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Jeff Lazerson - Mortgage Columnist since 2011