Mortgage Fee Structure in 2024: What Changes Can You Expect?

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Mortgage Fee Structure in 2024: What Changes Can You Expect?

The mortgage rate fever seems to have finally passed – at least for now. On the other hand, credit report costs are going up in 2024, changing the landscape for mortgage lenders.

Fair Isaac Corp. (FICO) plans to introduce a new fee structure that impacts lenders across the globe. Further price hikes in the new year will likely affect borrowers, increasing their concerns about their finances.


Mortgage Rates

After hitting a high of 7.79% in 2023, mortgage rates have cooled down lately, dropping to an average of 6.67% by late December. This decline, though promising, still leaves rates high compared to previous years.

The Federal Open Market Committee (FOMC) recently decided to keep the benchmark interest rate steady between 5.25% and 5.5%, marking the third time they've paused rate hikes. This move aims to gradually ease mortgage rates, which might drop to about 6.5% by the end of 2024, offering some relief to potential homebuyers.

Over the past year, mortgage rates soared due to the Fed's efforts to control inflation. However, recent signs of a slowing economy led to a consistent decline in rates, sparking a potential rise in refinancing activities. If rates drop to 5.5%, homeowners could save an average of $284 monthly by refinancing.

Here's what some experts think will happen with the average 30-year fixed-rate mortgage in 2024:

  • Lawrence Yun, Chief Economist at the National Association of Realtors, predicts rates could go up to 7% soon and settle around 6% by spring.
  • Crystal Sunbury, U.S. Real Estate Senior Analyst at RSM, expects rates to keep dropping slowly, reaching around 6% to 6.5% by spring if nothing significant happens in the economy.
  • The Mortgage Bankers Association (MBA) forecasts rates to be about 6.1% by the end of 2024, decreasing to 5.5% by the end of 2025 as Treasury rates go down.
  • Matt Vernon, Head of Retail Lending at Bank of America, suggests that if the Fed decides to lower rates in 2024, it could help the housing market, but any mortgage rate drops might happen gradually, starting later in the year.
  • Jack Macdowell, Chief Investment Officer at Palisades Group, predicts rates will stay around 7% to 7.25% in the first quarter of 2024.
  • Fannie Mae's Housing Forecast anticipates the 30-year fixed-rate mortgage to start at around 7% in Q1 2024 and slowly decrease to an average of 6.5% by the end of the year.


Credit Reports

Mortgage lenders will pay more for credit reports in 2024, which worries people in the industry. Fair Isaac Corp. (FICO), the company that measures credit risk, will charge all lenders more money, no matter how big or small their business is. This change is different from how they priced things in early 2023.

FICO will charge the same for soft and hard credit pulls next year, a change that started in 2023, even though these checks are pretty different. Lenders saw prices increase in 2023, even though FICO says the fees are just a tiny part of the overall report cost. This made people worry that getting a loan would be affordable.

Some people in the mortgage industry expect prices to go up significantly in 2024, maybe even double what they are now. These higher costs might be paid by borrowers who are already finding it hard to afford things. The rising fees are worrying people like Greg Sher and Scott Olson in the housing industry. They're concerned that aspiring homeowners might struggle more due to these increasing costs in today's economy.


Soft and Hard Pulls

Changes coming in 2024 affect how clients are charged for pulls on their credit. Soft pulls, which give pre-approval info visible only to the borrower and don't affect credit scores, will be closer in cost to hard pulls. Hard pulls show on credit reports and can be seen by anyone, potentially attracting new customers.

FICO, a company that calculates credit scores, shifted its pricing last year. They charged almost the same for soft and hard pulls, but some lenders got discounts for certain soft pulls.

Critics, like Brendan McKay from the Association of Independent Mortgage Experts, say FICO doubled hard check costs in 2023 and now charges the same for less informative soft pulls. They worry this expense will end up on consumers' shoulders, especially those from underserved communities.

McKay believes FICO holds a lot of power in the mortgage process, and this cost change could impact future homebuyers, urging the industry to speak up about it.

Fannie Mae and Freddie Mac, two major players, are shifting to newer credit scoring models—FICO Score 10 T and VantageScore 4.0—that are seen as more inclusive for borrowers. This move aims to make the system fairer.


Price to Originators

Lenders charge different prices for credit scores, and it's not the FICO company setting those prices. According to a FICO representative, what people pay for credit scores beyond the basic wholesale prices is decided by others who sell and distribute the scores.

The credit bureaus working with FICO might raise prices for their clients based on changes in FICO's prices. While TransUnion and Experian didn't respond, Equifax mentioned a price adjustment for 2024 due to increased costs from third-party providers. However, they assured me that they wouldn't increase expenses related to their credit file part of the credit report.

The president of the Mortgage Bankers Association, Bob Broeksmit, expressed concerns about these price increases, calling for more transparency into the factors driving these changes. He urged policymakers to look into these cost hikes to ensure transparency and protect consumers from higher costs when getting home mortgages.


The Bottom Line

In 2024, mortgage rates are holding steady, but big shifts are happening in credit report costs. Fair Isaac Corp. (FICO) is changing how they charge fees, making lenders worry about higher costs. This might affect how much borrowers pay, making it more challenging for some to afford homes. It's a hot topic for people in the housing market – both those in the industry and those dreaming of owning a home.

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