The FHFA had announced earlier this year that it would raise the cost of cash-out refinances, along with other associated risk pricing adjustments, as part of an effort to reduce high loan-to-value activity.
While the FHFA has stated that it is working to balance the needs of borrowers with the goals of reducing market volatility, mortgage brokers argue that the move to raise prices may have unintended consequences, particularly for those seeking to take out a new mortgage or refinance existing mortgages. Mortgage brokers point out that in order to qualify for a cash-out refinance, borrowers must typically be able to show strong income, assets and credit scores. As such, they fear that the increased costs may have a disproportionate impact on creditworthy borrowers with lower incomes, who may be disadvantaged by the new rules.
Mortgage brokers also argue that the increased costs associated with cash-out refinances could further restrict the flow of capital into the housing market. This could be especially damaging at a time when the market is already facing supply shortages due to tight inventory levels. As a result, it is feared that the market could become even more competitive and prices could continue to rise, further disadvantaging those who are unable to afford a traditional mortgage.
In response, mortgage brokers are urging the FHFA to reconsider its decision to raise the cost of cash-out refinances. They suggest that instead of raising costs, the FHFA should focus on increasing transparency in the mortgage lending process. Greater transparency, they argue, would allow borrowers to better understand the terms and conditions associated with their mortgage loans, while also allowing lenders to adjust their rates and fees based on the risk associated with each borrower. In addition, they argue that the FHFA should look at other methods for encouraging responsible borrowing, such as minimizing points and fees, providing education and counseling services, and offering financial incentives for borrowers who repay their loans on time.
In summary, mortgage brokers have asked the FHFA to reconsider its decision to increase the price of cash-out refinances due to its potentially negative impact on creditworthy borrowers and the flow of capital into the housing market. They suggest that instead of raising prices, the FHFA should focus on improving transparency in the lending process and explore alternative means of encouraging responsible borrowing. Ultimately, the goal is to ensure that borrowers are able to obtain financing that meets their needs at a reasonable cost, while also providing lenders with access to creditworthy borrowers in order to help maintain a healthy and stable housing market.
This article was contributed on Nov 19, 2023