FHFA withdraws controversial DTI-based loan policy

The Federal Housing Finance Agency (FHFA) is backtracking a proposed policy it announced earlier this year.

The new policy would create a loan level pricing adjustment (LLPA), an added fee on loans secured through Fannie Mae or Freddie Mac, based on the borrower’s debt-to-income ratio.

The intended goal of this new policy was to compensate for the potential additional risk with higher DTI-level loans. The change was met with mixed reactions from members of the housing industry.

Some groups are applauding the reversal as a gesture towards promoting and expanding homeownership accessibility and affordability.

“We applaud the FHFA for listening to the industry’s concerns by choosing to drop this fee on borrowers with higher debt-to-income ratios. It would have imposed a cost on borrowers at a time in the market when affordability is already stretched and only made them riskier.”

Kenny Parcell, president of the National Association of Realtors

Others welcomed the withdrawal as it was seen as potentially confusing for borrowers and loan officers alike.

“The proposed fee was unworkable for lenders and would have confused borrowers and undermined the customer experience, stated Bob Broeksmit, president and CEO of the Mortgage Bankers Association. We are pleased that FHFA engaged with industry stakeholders recognized the negative impacts of the fee, and decided to rescind its implementation.”

Bob Broeksmit, president and CEO of the Mortgage Bankers Association.

Critics of the reversal worry about the risks of relaxing lending practices, especially for high-risk loans.