Having good credit score could cost you more come May. 1

Beginning May 1, upfront fees for loans backed by Fannie Mae and Freddie Mac will be adjusted because of changes in the Loan Level Price Adjustments (LLPAs). Those fees are based on things including the borrower’s credit score, size of the down payment, type of home and more. In some cases, people with better credit scores may pay more in fees, while those with lower credit scores will pay less.

Here’s what to know about the new federal rules:

The Federal Housing Finance Agency (FHFA) has announced new rules for loans backed by Fannie Mae and Freddie Mac, which aim to provide easier access to credit for historically disadvantaged borrowers and to strengthen the capital of both agencies. These new rules will only impact new or refinanced home loans signed on or after May 1, 2021. According to the Urban Institute, Fannie Mae and Freddie Mac collectively comprised nearly 60% of all new mortgages during the pandemic in 2020.

Homebuyers who put down a larger payment of 15% to 20% may see a bigger increase in mortgage fees, but Bankrate.com mortgage analyst Jeff Ostrowski said this shouldn't change a borrower's decision-making process. The new fees will be slightly more expensive for some borrowers with good credit and less expensive for some borrowers with less-than-perfect credit. However, the penalty for having a lower credit score will be smaller than it was on May 1. The new rules will redistribute funds to reduce the interest rate paid by less qualified buyers.

Critics of the new rules say they penalize people with good credit, using them to subsidize loans of riskier borrowers. Former Home Depot CEO Bob Nardelli believes the new rules are just another subsidy to try to buy votes. Some housing experts fear that the new rules will encourage banks to lend to unqualified buyers, leading to another financial crisis. However, Ostrowski said that overall, mortgage fees still favor borrowers with good credit, and the fee reductions don't apply to borrowers with credit scores less than 680.

We would like to know what  you think, is this a good thing or a bad move on the behalf of Fannie Mae and Freddie Mac ?