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Oct 24, 2022, 9:47:51 PM10/24/22

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FHFA ends some upfront fees at Fannie Mae, Freddie Mac, revises credit score models

Oct. 24, 2022 1:41 PM ETFederal Home Loan Mortgage Corporation (FMCC), FNMAEFX, EXPGY, FICO, EXPGF, TRUBy: Liz Kiesche, SA News Editor2 Comments

Federal Trade Commission and Housing Finance Agency seals in downtown with closeup of sign and logo

krblokhin/iStock Editorial via Getty Images

The Federal Housing Finance Agency, which oversees mortgage giants Fannie Mae (OTCQB:FNMA) and Freddie Mac (OTCQB:FMCC), said Monday it's eliminating upfront fees for several categories of borrowers and affordable mortgage products as it also increases upfront fees on most cash-out refinance loans.

"Those borrowers who will benefit from this fee elimination are composed primarily of purchase borrowers with limited income, borrowers with limited resources for down payments, and borrowers in underserved communities," said FHFA Director Sandra L. Thompson Monday at the Mortgage Bankers Association annual convention.

The FHFA is eliminating upfront fees for: first-time homebuyers at or below 100% of area median income ("AMI") and below 120% AMI in high-cost areas; HomeReady and Home Possible loans, which are Fannie Mae (OTCQB:FNMA) and Freddie Mac (OTCQB:FMCC) flagship affordable housing products; HFA Advantage and HFA Preferred loans; and single-family loans supporting the Duty to Serve program.

Fannie (OTCQB:FNMA) stock has risen 1.5% in Monday afternoon trading, while Freddie (OTCQB:FMCC) stock gained more modestly, at 0.6%.

Both Fannie (OTCQB:FNMA) and Freddie (OTCQB:FMCC) are also changing the credit score models they'll use. Instead of Classic FICO, the GSEs will use both FICO 10T and VantageScore 4.0, models that provide more accurate credit scores than Classic FICO, Thompson said. The two newer models also include payment histories for borrowers in such things as rent, utilities, and telecom payments, when available.

"Requiring both credit scores, when available, will result in more borrowers that can be evaluated by the Enterprises than a single score alone, which will improve their management of credit risk while also responsibly and sustainably expanding access to credit for borrowers with less robust credit histories," she said.

Fannie (OTCQB:FNMA) and Freddie (OTCQB:FMCC) will now require two, rather than three, credit reports from national consumer reporting agencies, a move that FHFA expects will reduce costs while not compromising predictiveness of a borrower's ability to pay.

Fair Isaac (FICO) provides FICO scores, while TransUnion (TRU) provides VantageScore models. Other companies that provide consumer credit monitoring include Experian (OTCQX:EXPGY) (OTCQX:EXPGF) and Equifax (EFX).

FICO rose 0.6%, TRU +0.7%, EFX jumped 2.7%, and Experian ADRs (OTCQX:EXPGY) +1.7% Monday afternoon.

Last week, RBC Capital Markets downgraded Equifax (EFX) to Sector Perform due to mortgage, FX and interest-rate headwinds, while Truist reiterated its Buy recommendation on the stock.