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Understanding Loan-Level Price Adjustments (LLPA)

Understanding the Recent Changes to Mortgage Fees & LLPAs

Understanding the Recent Changes to Mortgage LLPAs:  Fact vs. Fiction

If you follow the news, you might have heard some chatter about changes in the mortgage world.  The concern is around changes to Loan Level Price Adjustments (LLPAs) imposed by Fannie Mae and Freddie Mac.  Unfortunately, it has caused some confusion and concern for mortgage borrowers. Some commentary has gone so far as to suggest folks lower their credit score in order to get a better deal. Not only is this commentary harmful, it is also false. I would like to dig into the LLPA situation and address the facts and fiction around the topic.

What is a Loan Level Price Adjustment (LLPA)?
LLPAs are not new.  However, they are being adjusted for the first time in over 15 years.  LLPAs are essentially an adjustment to the base of a mortgage loan rate which is based on credit scores and downpayment amounts.  All of this will determine what interest rate a consumer is offered. 

LLPAs are imposed by Fannie Mae and Freddie Mac, the two entities that guarantee a vast majority of new mortgages.  Their mission is to promote affordable homeownership.  The change was announced in January, and banks must implement it for all loans purchased by Fannie Mae and Freddie Mac on or after May 1, 2023.  There is a good chance that if you closed a loan in the past month, the new LLPA rates were applied. 

I read the headlines that lower FICO scores get a better rate, is this true?
No.  This is FICTION.  FACT:  The media explained that there are now larger adjustments for higher credit score loans with money down compared to less adjustments for those with a smaller down payment and lower credit scores. 

What the media didn’t explain is that lower credit scores are going to start at a much higher base rate and a great credit score loan will start at a much lower base rate.  All of that to be said a lower credit score with a minimum down payment is not getting a better deal than someone with a higher credit score and a large down payment.    As you can see from the real time, LLPA chart below, LLPAs are substantially higher as credit scores fall below 780. 

Source: Fannie Mae
So, does credit score or down payment matter?
Yes, Yes, Yes! Don’t go skipping those credit card payments in the hopes of getting a lower rate. Be careful where you take advice, and please don’t intentionally hurt your credit score. Your score plays a huge impact in the final interest rate you receive.

Still confused? We’re here to help! Give me a call, and I’ll be happy to walk you through it.