Mortgage fees changed this month. Here’s what NC homebuyers need to know.

If you’re looking to lock in rates for a mortgage in the Triangle this spring, here’s a heads-up. Starting this month, government-backed Fannie Mae and Freddie Mac have changed upfront fees for loans.

The upshot: People with higher credit scores may end up paying slightly more. Those with lower credit scores and down payments may end up paying less.

The Federal Housing Finance Agency (FHFA), which oversees Fannie and Freddie, introduced the updated fee structure in January. As rising costs keep the dream of homeownership out of reach for many across the Triangle and nationally, the agency says loan-level pricing adjustments, or LLPA, will help improve housing affordability.

What is a loan-level pricing adjustment?

Loan-level price adjustments are not new. They are extra fees lenders may apply to mortgage loans to manage risk.

FHFA first introduced the fees shortly after it bailed out Freddie Mac and Fannie Mae during the subprime mortgage crisis in 2008. Today, the two remain under conservatorship and support around 70% of the mortgage market.

FHFA regularly updates its matrix to fulfill regulatory requirements, which allows it to raise prices for “riskier” borrowers without applying a penalty to “safer” ones.

LLPAs can change a person’s mortgage rate by 100 basis points (1%) or more. Most lenders adjust the interest rate on a loan to cover the LLPAs.

What are the fee changes?

UNC-Chapel Hill professor and real estate expert Roberto Quercia said the fees are assessed based on various factors. Among them: credit score, loan-to-value, debt-to-income, loan purpose, occupancy and mortgage type.

The price changes don’t mean people with lower credit scores will pay less than those with higher credit scores, he explained. People with higher credit scores will still pay less based on lower risk to lenders. Instead, the penalty is less severe for people with lower credit scores.

For example, a buyer with a credit score of 650 who puts 25% down on a $400,000 home would now pay 1.5% in fees on the loan, or $4,500. Under the previous fee structure, the fees would be more like 2.75%, or $8,250.

On the flipside: A borrower with a credit score of 750 who puts down 25% on a $400,000 home would now pay 0.375% in fees, or $1,125. It was 0.250%, or $750, previously.

“All borrowers benefit from the fee changes,” Quercia said. “Obviously, lower-credit borrowers benefit from lower fees, but higher-credit-score borrowers also benefit from having sustainable, government-backed access to credit.

“Even with the higher fee after May 1, these borrowers pay less in fees now than they would in the non-conventional market.”

The tables outlining the fees based on loan-to-value ratio and credit score have been posted online by Freddie Mac and Fannie Mae.

Loans affected by the new format will include conventional mortgages and refinance loans purchased by Fannie Mae and Freddie Mac. Excluded from the new fees are FHA, VA, USDA and HUD Section 184 mortgages.

What about debt-to-income ratio fees?

One fee initially proposed with the others in January won’t be rolled out.

Earlier this month, FHFA scrapped a new fee that would have applied to people with a debt-to-income ratio, or DTI, above 40%. The agency dropped the fee after facing criticism it would force credit-worthy homebuyers to subsidize those with riskier loans.

“I appreciate the feedback FHFA has received from the mortgage industry and other market participants about the challenges of implementing the DTI ratio-based fee,” said director Sandra L. Thompson, in a release on May 10. “To continue this valuable dialogue, FHFA will provide additional transparency on the process for setting the enterprises’ single-family guarantee fees and will request public input on this issue.”

National Association of Realtors president Kenny Parcell praised the decision.

“The [fee] would have imposed a cost on borrowers at a time in the market when affordability is already stretched and only made them riskier,” he said.

North Carolina Rep. Patrick McHenry, a Lincoln County Republican and chairman of the House Financial Services Committee, said he still isn’t satisfied. He’d like to see all the fees rescinded.

“Instead, Congress will now take action to end this tax on creditworthy borrowers,” McHenry said in a statement.