There has been some confusion about the recent changes to mortgage fees announced by the Federal Housing Finance Agency (FHFA). These fees increased for mortgages with low down payments but decreased for those without great credit, to a point. Imposed by government enterprises Fannie Mae and Freddie Mac, the fees hope to mitigate the risk of borrower default. The major change is the gap between a “good” and “less-than-desirable” credit score. A consumer with a 760 credit score and 5% downpayment will pay a fee of about 0.5% of the mortgage amount. If instead, they had a credit score of 660 with the same downpayment, the fee would increase to 1.625%.
To clear some confusion, FHFA Director Sandra Thompson issued a statement highlighting that fees paid will still decrease as credit score increases, which is how it was operated before. Fees did not consistently increase or decrease across the board. Most borrowers with high credit scores or down payments of at least 20% of the purchase price will see their fees decrease or remain flat. The fees have been recalibrated to take into account the current risk assessment of borrows given a particular credit score and down payment, as the fee structure has not been reviewed in many years.
The updated fees do not incentivize lower down payments as any down payment lower than 20% will incur mortgage insurance premiums.
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