The Truth About the Mortgage Rate Controversy

You’ve seen it all over social media and even on the news…are people with bad credit really going to get better mortgage interest rates than people with good credit? 

The answer: It’s complicated.

Let’s cut through the misinformation and get to the truth behind the proposed changes to mortgage fees:

1. The changes would not apply directly to interest rates, but could indirectly impact interest rates.

The proposed fee changes apply to Loan Level Price Adjustments (LLPAs). Loan Level Price Adjustments are imposed by Fannie Mae and Freddie Mac and charged as fees, which can be charged up-front (typically in closing fees) or built into the interest rate. 

The previous fee structure was established in 2009 and has not changed since then. Lenders do not have any control over these fees, and the charges can alter your loan terms by increasing the total cost of your loan.‍

2. LLPA changes would only affect Fannie Mae and Freddie Mac-backed loans.

The proposed changes would not impact VA loans, or loans through the Federal Housing Administration (FHA loans). These types of loans have different underwriting requirements, are insured or guaranteed differently, and as a result, utilize different fee structures. 

3. The proposed changes aren’t based on FICO scores alone.

While social media posts on the changes focus on how changes would impact buyers at various FICO scores, there are many other factors involved, such as the type of loan, the type of property being purchased, and the amount of the buyer’s down payment.

For example, borrowers who put less than 5% down will have lower fees at all FICO scores, and first-time buyers with low-to-moderate household income would pay no added fees at all.

The most significant increases in the new LLPA structure would apply to those seeking cash-out refinance loans, not those seeking to purchase a primary residence.

4. LLPA changes have been delayed until this fall.

As a whole, the mortgage industry is not a fan of the proposed rate changes. Lenders and other trade members are rallying to have fees lowered across the board, rather than just for select borrowers. 

For now, the new fee matrix has been delayed until August 2023. Changes could be pushed back even further, or canceled completely, as resistance from both lenders and borrowers gains traction.

The bottom line

Purchasing a home is a huge milestone in life. To set yourself up for success no matter what happens with interest rates, fees, and housing market ups and downs, you’ll want to make sure your finances are in great shape. 

Check out more educational resources to help you prepare for homeownership:

What credit score is needed to buy a house?

How to build credit to buy a home 

What to do if you’re turned down for a mortgage

Need better credit, fast?

StellarFi is a credit-building tool that can improve your credit score automatically, and helps you pay your bills on time. StellarFi reports to the four largest credit bureaus, and impacts ALL VantageScore^® and FICO^® score models.

Try it free for 30 days

‍