New mortgage financing policies from Fannie Mae and Freddie Mac are poised to shake up the housing market for 2023.

Loan Level Price Adjustments (LLPAs) are determined by a number of factors, most prominently the borrower’s credit score and debt-to-income ratio (DTI), among others.

The new policies concerning LLPAs will reduce the cost incurred for having a lower credit score. There will still be a discrepancy between lower credit and higher credit scores, just not quite so punishing of one.

These changes will come into effect for loans guaranteed by Fannie Mae or Freddie Mac, starting on May 1, 2023. While these changes will apply to the majority of loans within the United States, there are some, such as VA loans or “jumbo loans” from credit unions, that will be exempt from these changes.

This announcement comes on the heels of a previous announcement earlier this week, which outlined changes to Fannie Mae’s automated underwriting system. These changes include changing criteria for would-be borrowers looking to establish credit, the utilization of bank statements to determine borrowers’ income and balance trends, and an automated option for lenders to document nontraditional credit sources.

Together with such measures as a LLPA waivers for first-time home buyers with income less than or equal to 100% of the Area Median Income, these changes are intended to facilitate underserved would-be borrowers by making financing more obtainable. These policies coming into effect in late spring could possibly “jump-start” the currently-sluggish housing market.

Here in Huntsville, that market continues to slow, with reporting on the first week of January from the Huntsville Area Association of Realtors (HAAR) showing decreases in both pending sales and new listings by 18.7 and 18.2%, respectively.

The Huntsville Business Journal will continue to monitor the real estate market, and keep its readership apprised of new developments.