Free Market Mortgage Act of 2023: Its purpose and impact

The Free Market Mortgage Act of 2023, though not officially titled as such, refers to H.R. 2876, a legislative proposal introduced to counteract a new fee structure proposed by the Federal Housing Finance Agency (FHFA) in 2023. This act aimed to cancel certain changes to loan-level price adjustments (LLPAs) that critics argued would unfairly penalize borrowers with good credit scores. While the bill did not progress beyond the House Committee on Financial Services, it sparked significant debate and led to the introduction of a similar bill, the Middle Class Borrower Protection Act of 2023.

In 2008, amidst the financial crisis, LLPAs were introduced to align government-backed loan fees with the risk profiles of borrowers. These fees vary based on factors such as the borrower's credit score and the size of the down payment. In 2021, FHFA director Sandra Thompson initiated a review of these fees, resulting in an updated fee framework announced in January 2023, set to take effect on May 1, 2023. The new framework proposed adjustments that, in some cases, increased fees for borrowers with higher credit scores and decreased them for those with lower scores.

In response to the proposed changes, Rep. Stephanie Bice introduced H.R. 2876, known informally as the Free Market Mortgage Act of 2023. The primary objective of this bill was to cancel the implementation of the new fee structure. Supporters of the bill argued that the new framework unfairly penalized borrowers with good credit, while critics contended that it did not accurately reflect borrower risk profiles.

The Free Market Mortgage Act of 2023 had a singular provision: to cancel the new upfront fee framework introduced by the FHFA. This framework was perceived as controversial because it appeared to increase costs for those with higher credit scores, potentially discouraging responsible borrowing behavior. The bill was referred to the House Committee on Financial Services but did not advance further.

A similar legislative effort, the Middle Class Borrower Protection Act of 2023 (H.R. 3564), was introduced on May 22, 2023. This bill aimed not only to cancel the new fee structure but also to restrict the types of adjustments the FHFA could make to fees and temporarily halt any changes. The Middle Class Borrower Protection Act passed the House in June 2023 but did not progress to a Senate vote.

The proposed changes to the fee structure drew mixed reactions. Supporters of the Free Market Mortgage Act of 2023 argued that the new framework unfairly penalized those with good credit. Critics, however, pointed out that the legislation was based on misconceptions about the fee adjustments. FHFA director Sandra Thompson noted that, overall, fees increased as credit scores decreased, suggesting that the new framework aimed to balance risk more accurately.

The debate surrounding the Free Market Mortgage Act of 2023 and the Middle Class Borrower Protection Act highlighted the complexities of mortgage fee structures and their impact on borrowers. For those with higher credit scores, the new framework could potentially result in higher costs, despite their responsible borrowing behavior. Conversely, borrowers with lower credit scores might benefit from reduced fees, potentially increasing their access to homeownership.

The introduction of the Free Market Mortgage Act of 2023 and the ensuing debate brought attention to the broader implications of mortgage fee adjustments. As the housing market continues to evolve, the balance between encouraging responsible borrowing and ensuring fair access to homeownership remains a critical issue. Market forecasts suggest that mortgage rates may remain high through the end of 2024, emphasizing the importance of maintaining an exceptional credit score and considering options such as making larger down payments or buying mortgage points to secure better rates.

While the Free Market Mortgage Act of 2023 did not advance beyond the House Committee on Financial Services, it played a significant role in prompting discussions about the FHFA's fee framework and its impact on borrowers. The introduction of the Middle Class Borrower Protection Act further underscored the ongoing debate about fair and equitable mortgage fee structures. As the housing market continues to navigate these challenges, future legislative efforts may seek to address the concerns raised by these bills and ensure a balanced approach to mortgage lending.