The Free Market Mortgage Act of 2023 aimed to prevent changes to the fee structure imposed on mortgages by Fannie Mae and Freddie Mac. Although not officially titled as such, H.R. 2876 was introduced with the intent to cancel a fee structure proposed by the Federal Housing Finance Agency (FHFA) in January 2023, set for implementation on May 1, 2023.
Introduced by Representative Stephanie Bice (R-OK) on April 26, 2023, the bill was officially titled ‘To cancel certain proposed changes to loan level price adjustments by the Federal National Mortgage Association and credit fees charged by the Federal Home Loan Mortgage Corporation.’ It was referred to the House Committee on Financial Services but never proceeded out of committee.
A similar bill, H.R. 3564, the Middle Class Borrower Protection Act of 2023, was introduced on May 22, 2023, and eventually passed the House, although it didn’t make it past the Senate.
Key Takeaways:
The Free Market Mortgage Act of 2023 was designed to block changes to the fee structure imposed on mortgages made by Fannie Mae and Freddie Mac.
Provisions in the Free Market Mortgage Act of 2023 are similar to those in the Middle Class Borrower Protection Act of 2023, which passed the House but not the Senate.
The changes to the fee structure drew criticism from those who argued it penalized those with good credit.
Understanding the Free Market Mortgage Act of 2023:
Fannie Mae and Freddie Mac are government-sponsored enterprises (GSEs) that facilitate homeownership by guaranteeing mortgages as well as buying and servicing those made by other lenders.
In 2008, as a response to the financial crisis, loan-level price adjustments (LLPAs) were added to help bring government-backed loan fees in line with borrowers’ risk profiles. These fees vary based on different loan traits, including the size of the down payment and the borrower’s credit score.
In 2021, FHFA director Sandra Thompson launched a review of these fees. The result was an updated fee framework introduced in January 2023 and designed to go into effect on May 1, 2023.
When the new framework was released, critics pointed out that, in some circumstances, fees would increase for those with higher credit scores, while fees would potentially decrease for those with lower credit scores.
In response to these concerns, Rep. Bice introduced the Free Market Mortgage Act of 2023 to cancel the changes. However, after being referred to a House committee, it didn’t proceed any further.
A similar bill, the Middle Class Borrower Protection Act of 2023, passed through the House in June 2023. However, it didn’t make it to a vote in the Senate.
Key Provisions of the Free Market Mortgage Act of 2023:
The only provision of the Free Market Mortgage Act of 2023 was to cancel the implementation of the new upfront fee framework applied to GSE loans.
Similarly, the Middle Class Borrower Protection Act of 2023 also aimed to cancel these fees. This legislation went a step further, though, as it would’ve restricted the types of adjustments the FHFA can make to fees and temporarily restricted the change in fees.
The Free Market Mortgage Act of 2023 was proposed but didn’t go further than the House. Supporters had issues as it seemed to penalize those with higher credit scores with larger fees than lower credit scores. Others said the new structure doesn’t accurately address borrower risk profiles. Critics pointed out that the legislation was proposed in response to inaccurate and incomplete representations of the new framework. FHFA director Thompson stated that overall, fees increased as credit scores decreased. Others noted that borrowers with higher credit scores could still get a better mortgage cost deal. It’s possible to buy ‘points’ on your mortgage to directly reduce your mortgage interest rate. Some market forecasts suggest the Federal Reserve might start cutting interest rates by the end of 2024, while others like those at Freddie Mac expect mortgage rates to remain mostly high through the end of the year. The best way to get the lowest possible rate on a mortgage is to maintain an ‘exceptional’ credit score (over 800 for FICO score). You can also potentially reduce your mortgage rate by making a bigger down payment and buying points. While the act didn’t progress further, it prompted more discussion about the changes to the FHFA fee framework related to GSEs Fannie Mae and Freddie Mac.
