Five Questions With: Stephen Tetzner

Stephen Tetzner is area vice president for Mortgage Equity Partners in Warwick. He has more than three decades of experience in the mortgage business, including founding Rhode Island business Homestar Mortgage, before joining Mortgage Equity Partners.

Tetzner spoke with PBN about the Federal Housing Finance Agency’s recent announcement about upcoming changes to loan-level pricing adjustment fees charged by Fannie Mae and Freddie Mac on conventional and conforming mortgage loans.

PBN: Can you briefly summarize the loan-level price adjustment changes that are coming?

TETZNER: Effective in May, FHFA, which is the agency that controls Fannie and Freddie, will be changing their schedule of pricing adjustments. This schedule of adjustments is called loan-level pricing adjustments, which impacts the overall rate and program that a borrower will pay on their mortgage loan.

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The FHFA has made significant changes to adjustments to certain property types – condominiums, multifamily houses and manufactured housing. There are also changes in pricing for borrowers who have a debt-to-income ratio above a never-previously-stated level.

PBN: Who does this impact, and how? In other words, what types of borrowers in terms of income, credit score, type of home, etc.?

TETZNER: This change will affect a wide spectrum of borrowers, including people with higher credit scores, lower credit scores and low-to-moderate income borrowers. This will even affect borrowers who are putting more than 20% down on their transaction.

PBN: How significant is this? Has a change of this scale ever happened before? If so, when?

TETZNER: Just at a time when the economy is on the brink of an economic slowdown, this change represents a significant change in how both purchase and refinance transactions are approached.

The depth of this change is something that we have not seen before. It is not uncommon for FHFA to make adjustments to a specific segment – such as the adverse market fee that they instituted to slow down refinance transactions during the pandemic – but to cast such a wide net is something that has not been seen prior to this.

PBN: This is directed at Fannie Mae and Freddie Mac, but really, borrowers from any bank will see an impact. Why is that, and when can people expect to see changes from this in their own loans?

TETZNER: According to FHFA.GOV, for calendar year 2018 through the first six months of 2020, Fannie and Freddie acquired 74% of all standard conforming loans originated during that time.

In many cases, even if a borrower goes into their local bank branch to obtain a mortgage loan, the overwhelming majority of the time the loan will be ultimately sold to Fannie and or Freddie. Since the borrower will never make a payment to one of these agencies, they will likely not even know that their loan is owned by them.

PBN: What is the reason why these LLPAs were made? What long-term impact, if any, will it have on the way loans are calculated?

TETZNER: FHFA Director Sandra Thompson stated in the announcement “these changes to upfront fees will strengthen the safety and soundness of the enterprises (FNMA/FHLMC) by enhancing their ability to improve their capital position over time.”

While this is likely true, it is coming at a time when our economy will be looking to the housing industry to lead the way out of an economic slowdown.

Nancy Lavin is a PBN staff writer. Contact her at