- Phillip Bracken
Celebrating Two Major Victories for Homeownership
Updated: Dec 12, 2022
For America’s homeowners and aspiring homeowners, two significant policy changes have made getting a mortgage loan more fair and less costly. At America’s Homeowner Alliance (AHA), we are celebrating as we have been advocating on behalf of homeowners for change.
Credit Score Competition
For nearly a decade, AHA has been advocating for change in the way mortgage loans are produced in America. Until the recent announcement by FHFA authorizing the use of VantageScore Model 4.0, the FHFA required the use of an outdated credit score mo
del (FICO© Classic) for every loan produced in America targeted for sale to Fannie Mae or Freddie Mac. Lenders and consumers were forced to accept periodic price increases to obtain the credit score for the consumer because there was no approved competitive alternative. Additionally, VantageScore presented evidence that the use of their Model 4.0 could result in approximately 37 million consumers being able to receive a credit score that were unable to obtain one using the Classic FICO scoring model. The announcement by FHFA opened the door for millions of Americans to receive a score. Acknowledging that not all of these consumers will be creditworthy, AHA advocated strongly for competition in credit scoring to expand opportunity for the underserved population. Being able to receive a score gives these consumers a benchmark for which their payment habits can be improved for them to become creditworthy.
Elimination of Fees for First time Homebuyers
Loan Level Price Adjustments First Time Homebuyers and Certain Other Consumers....
For years, AHA has been advocating to change Loan Level Price Adjustments (LLPAs), the practice of "double-charging" for the same mortgage loan risk on all loans eligible for sale to Fannie Mae and Freddie Mac. AHA posted a petition over a year ago to eliminate this practice of double charging for the same risk. On Oct 24th, the Federal Housing Finance Agency (FHFA) finally reversed course and eliminated this practice of sanctioned over-charging.
Because every mortgage loan with less than 20% downpayment already requires Private Mortgage Insurance (PMI) to protect the lender and the GSEs (Fannie Mae and Freddie Mac) in case of default by the consumer (borrower), there was no reason for the GSEs and FHFA to require the use of Loan Level Price Adjustments imposed on primarily the borrowers who - for the most part - had the least capability of affording to pay twice for the same risk. LLPAs were imposed in 2008 as a supplemental "credit overlay" by the GSEs to slow down the extension of credit to those consumers. But that risk was already priced for and protected against through the use of Private Mortgage Insurance. These extra charges were targeted toward those specific aspiring homeowners with the lower credit scores and lower down payments - even though that criteria was the same criteria the Private Mortgage Insurance industry already priced for in their pricing matrix. The announcement by the FHFA of the elimination of those excess charges to consumers in specified categories was a huge victory for consumer affordability.
We are celebrating these two hard-fought victories that help preserve the opportunity of homeownership. Will you join the cause? Add your voice and support for advancing homeownership opportunity by joining AHA today.