ok once again I ask if the fee goes to the lender what prevents the lender from adjusting his normal rate down to zero out the additional fee
That’s not how it works. Let me explain.
the market to purchase and sell mortgages in the secondary market is what makes the market work. Most banks originate the mortgage and sell it to another bank. The bank that wrote gets Fee income from that sale, and the bank or servicer that buys it gets the value if the servicing rights and all the fees that go with it.
To be a bank or servicer- you have to have major scale and spend heavily on technology. That’s why there are only a handful of servicers- and that’s why so many banks originate them to sell them for feet income.
either way the market is controlled by Fannie Mae and Freddie Mac. The underwriting is automated to their standards and the pricing is automated to their standards.
Each loan has what they call LL PAs. Loan level price adjustment. Those have been around forever. A simple example would be let’s say you and I both apply for a mortgage and everything between us is equal except your debt to income calculation is 30% and mine is 40%. By definition my loan is slightly riskier and therefore there will be a loan level price adjustment to the interest rate for me. Perhaps 1/8 higher or something like that. All of the banks base their pricing on these standards and loan level price adjustments because they have to. Whether you’re selling alone or keeping it, or buying it it is basically stamped at a certain risk level which is reflected and its price. So if you try to charge extra or charge less to be more competitive you are now holding or selling an asset that is not priced right and you will lose in the end.
what this new policy is doing - in certain cases- is reversing that thought process. So somebody with a higher credit score might get A loan level price adjustment that gives them credit for that and give them a lower interest rate. Effective May 1 it might just be the opposite where the person with the higher credit score has a higher interest rate and the person with a lower credit score has a lower interest rate. Same with down payments. Historically if you put more money down you had a lower loan to value, so you had a loan level price adjustment in your favor with a lower interest rate. Effective May 1 that might actually work against you where you are rewarded for having less money down and penalized for having more money down.
said quite simply it is clearly away for good borrowers, which is people with good credit scores who have saved money for a down payment, to subsidize mortgage lending for those who don’t have good credit scores or have not saved money for a down payment.
it has good intentions, which I had to help people overcome barriers but unfortunately like so many other things in our world that’s being done at the cost of people who have been successful paying their bills and saving money.
and no way does this help any mortgage lender. Mortgage lenders want credit worthy borrowers and this does not attract credit worthy borrowers. It attracts people who are less credit worthy and therefore much higher risk levels.
and this has nothing to do with the banks or mortgage lenders who all are very much against it. This is a policy instituted by the federal housing financial administration, which is a presidential appointed role and has control over Fannie Mae and Freddie Mac.
