Leading Civil Rights and Housing Groups Support FHFA’s Critical Updates to the Mortgage Pricing Framework

We commend Director Thompson and FHFA for recent updates to the mortgage pricing framework that represent a critical first step in the journey to create a more equitable system for creditworthy borrowers. The updates help address persistent gaps in wealth and homeownership while also improving safety and soundness for Fannie Mae and Freddie Mac (collectively, the ‘Enterprises’). It is unfortunate that recent inaccurate criticism of the updates has been issued without the context of data, analysis, or history.

This year we commemorate 55 years of the Fair Housing Act. Yet in 2023, residential segregation, housing discrimination, and an affordable housing crisis remain at the core of inequality in the United States. When Congress passed the Fair Housing Act in 1968, it intended for federal agencies such as FHFA to take active steps to end housing discrimination, eliminate housing segregation and its ill effects, and dismantle systemic racism and inequality to ensure people could have safe and decent housing in vibrant communities. Also, Congress mandated that the Enterprises support mortgages on housing for low- and moderate-income families that are responsibly underwritten but may generate lower returns than other products.

Despite these congressional mandates, in the wake of the 2008 financial crisis, FHFA required the Enterprises to charge lenders upfront guarantee fees known as Loan Level Pricing Adjustments (LLPAs), which were based on certain attributes of the borrower or the loans (e.g., loan-to-value/credit-score grid, cash-out refinance, investor properties, secondary financing at origination, jumbo conforming loan). The LLPA pricing framework had a disproportionate impact on borrowers of color and was inherently unfair as it placed the burden of the Enterprises’ financial recovery and future catastrophic risk on borrowers of color, even though they were the victims of the financial crisis, not the cause. Black and Latino communities lost $1 trillion in wealth to unnecessary foreclosures after being targeted for abusive and unsustainable mortgages leading up to the 2008 Housing Crisis. Asian American and Pacific Islanders and other communities of color were also devastated by toxic subprime loans. Moreover, the Financial Crisis Inquiry Commission found that the crisis was driven by financial institutions’ appetite for excessive profits and lax regulation. Our organizations urged the Biden-Harris administration to prioritize restoring safe, fair, and inclusive mortgage pricing to promote equitable housing as well as safety and soundness.

After careful review, FHFA took steps in the past 18 months to make incremental changes to the pricing framework, including:

• Eliminating upfront fees for the Enterprises’ affordable mortgage programs and first-time homebuyers at or below the median income; and
• Increasing upfront fees for vacation homes, cash-out refinances, and large loan amounts.

Also, the framework will decrease fees for some creditworthy borrowers who have smaller down payments but who pose a decreased risk to the Enterprises by paying private mortgage insurance.

Our organizations applaud FHFA’s thoughtful approach as an important initial step in achieving improved equitable pricing as well as safety and soundness. We also urge FHFA to continue the work of repealing the unfair and ineffective LLPA framework imposed after the Great Recession, which disproportionately impacts consumers of color. Seventy percent of all projected future homebuyers will be borrowers of color. Stifling their access to safe and affordable mortgages poses great risks to the nation’s housing finance system.

By addressing structural inequities, we can build a stronger economy, develop and support more fair and affordable housing options, and maintain a check on inflation, as housing is the single largest expense for the average consumer. We look forward to working with FHFA and other stakeholders to ensure that the Enterprises’ mortgage pricing framework is effective and beneficial to everyone in this nation. We urge FHFA to move forward swiftly with the implementation process.