The Biden administration is implementing a new federal rule aimed at closing the racial homeownership gap and increasing homeownership among first-time and low-income buyers. The rule will result in higher mortgage fees for homebuyers with good credit scores, while riskier borrowers will receive more favorable terms with reduced fees. The changes to the Loan-Level Price Adjustment (LLPA) matrix by the Federal Housing Finance Agency (FHFA) aim to address housing affordability challenges in the United States.

Critics argue that the rule change is unfair and may not effectively achieve its goals. Concerns have been raised about the potential negative impact on middle-class homeownership and the penalization of borrowers with good credit. The rule disproportionately affects borrowers with higher credit scores, who are predominantly white, while seeking to benefit low-income and minority borrowers.

The average credit scores in white, Hispanic, and Black communities are notably different, with white communities having the highest scores. The new rule has sparked debates about subsidizing homeownership for historically disadvantaged groups at the expense of borrowers who have worked hard to improve their credit and save for larger down payments.

Industry experts’ express skepticism about the effectiveness of the rule in increasing homeownership among low-income and minority borrowers. While acknowledging the need to address generational limitations and racial disparities in homeownership, critics argue that the FHFA’s actions may not significantly reduce borrowing costs.

The FHFA defends the changes, describing the recalibration of pricing as minimal and emphasizing the agency’s commitment to ensuring that Fannie Mae and Freddie Mac fulfill their role in any market condition. However, critics, including former National Economic Council director Larry Kudlow, argue that the rule is effectively a tax hike on the middle class and that government programs should not penalize those who can afford homes without assistance.

The National Association of Realtors (NAR) urges the FHFA to reconsider the fee increase for borrowers with strong credit, suggesting that incentivization of homeownership can be achieved without penalizing others.

The timing of the LLPA changes is seen as unfavorable due to the spring buying season and low housing inventory. Additionally, concerns are raised about the introduction of an LLPA for loans with a debt-to-income (DTI) ratio greater than 40 percent, which may complicate estimates and increase compliance costs for lenders and borrowers.

The Mortgage Bankers Association (MBA) has expressed disappointment with the new fees and has requested alternatives to be considered, expressing concerns about the impact on the lending community and potential homebuyers. The FHFA has delayed the DTI ratio-based fee until August 1 but has not indicated a willingness to explore alternatives currently.


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