Some lenders may not explain every fee to borrowers applying for a mortgage, even though they are required to do so. The fees often glossed over are those added to the loan by Freddie Mac or Fannie Mae. These fees are often either guarantee fees (G-fees) or loan-level price adjustments (LLPA). They are there to cover any costs that Freddie Mac and Fannie Mae incur while funding the mortgage market, and these fees may raise the interest rate on a loan or increase the amount of down payment needed.
While the G-fees cover Freddie and Fannie's costs, the LLPA charges are there to provide them with extra compensation on any loan they see as especially risky. Anyone applying for a mortgage with a credit score below 740, for example, is likely to have some form of LLPA fee added. The same is true with those purchasing a condo or for those with a down payment under 40 percent.
However, a group of 25 different organizations is now calling out the two, saying that Freddie and Fannie are gouging borrowers with unreasonable fees. They say that defaults have dropped and that the underwriting process has improved to the point where those likely to default are denied large loans, yet G-fees have doubled and LLPAs remain high. The coalition of national mortgage, consumer, housing, and civil rights groups argue that borrowers are being punished with these fees and that the system needs to change.
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