FHFA director defends LLPA changes, other policies in House hearing

The policies under fire include a new capital rule for the government-sponsored enterprises (GSEs), called the Enterprise Regulatory Capital Framework (ERCF), and the controversial pricing adjustments to fees the GSEs charge lenders on single-family loans, or Loan-Level Price Adjustments (LLPAs).

Thompson, however, defended the policies, contending that certain reports include incorrect or misleading information about the impact the policies could have on good-credit borrowers.

“As Representative Cleaver rightly pointed out at last week’s subcommittee hearing on this topic, housing finance is a complex issue and the pricing grids underpinning this framework are not easily digestible,” Thompson said in her written statement. “Unfortunately, certain media reports have distorted basic facts by painting an incomplete and misleading picture of these pricing updates. These media reports often make the fundamental mistake of assuming that the pricing grids previously in place were perfectly aligned with the risks faced by the Enterprises.”

Thompson characterized this as a “myth,” stating that pricing grids that were in effect prior to the roll-out of these updates had not been updated in many years, and were not “fully reflective of the capital framework with which the Enterprises are required to comply.”

Thompson also took direct aim at claims that good-credit borrowers are negatively impacted by the subsidies for lower-credit borrowers.

“I want to be very clear on one key point, and one that bears repeating: under the new pricing framework, borrowers with strong credit profiles are not being penalized to benefit borrowers with weaker credit profiles,” Thompson said. “That is simply not true.”

Instead, the updated pricing framework implemented by the agency helps to fulfill the title of the hearing in “protecting homeowners and taxpayers,” according to Thompson.

“First, the updated pricing framework supports American homeowners by eliminating the upfront fees for many creditworthy borrowers—first-time homebuyers with lower incomes, for example—and does so by increasing the fees on products that are less central to homeownership, such as second homes or vacation homes,” she said. “These targeted changes promote homeownership that is both attainable and sustainable. Second, the updated pricing framework enables the Enterprises, both of which are taxpayer-supported, to build capital in a safe and sound manner.”

Thompson’s comments also included references to the FHFA’s review of the Federal Home Loan Bank System announced in August 2022; an active review of credit score models in concert with the GSEs; technological advancements sought by the GSEs themselves; and payment deferrals for borrowers facing financial hardship.

Prior to the FHFA rescinding its plans to change the LLPA fee structure, both housing industry advocates and politicians voiced their concerns. In April, Republicans in the House introduced a bill to block the LLPA changes from taking effect.

Thompson said at the time that the agency “will provide additional transparency on the process for setting the Enterprises’ single-family guarantee fees and will request public input on this issue.”

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