Loan Level Pricing Adjustments & Credit Bank Changes- What You Need To Know

On May 1, Fannie Mae and Freddie Mac made changes to loan-level pricing adjustments (LLPAs) that have been applied to conventional loans since the Great Recession. Most conventional mortgages that lenders want to sell to Fannie and Freddie will now be subject to the new fees.

The fees don’t apply to first-time homebuyers with qualifying income that’s less than or equal to 100 percent of the area median income (AMI) in their markets or 120 percent of the AMI in high-cost markets. The fees also don’t apply to Fannie and Freddie’s affordable mortgage programs, HomeReady and Home Possible which let homebuyers put as little as 3 percent down, or nonconventional government-backed loans, including FHA loans, VA loans, USDA loans and HUD Section 184 loans. 

PLEASE NOTEThis change applies to fees, not the mortgage rate.

The fees are set by Federal Housing Finance Agency (FHFA) for any mortgages guaranteed by Fannie or Freddie. These fees go up periodically and last April they went up for certain mortgage products — those ones with a high loan-to-value ratio, second home mortgages and buyers in markets that have a higher conforming loan limit than the ones across the country.

The upcoming change comes after the FHFA tasked Fannie and Freddie with building up a capital reserve of $300 billion. While the mortgage giants’ combined net worth was only $97 billion at the end of the year, former Freddie Mac CEO Donald Layton thinks the mortgage giants could be considered recapitalized when their net worth hits $150 billion, based on his own research into government-mandated annual stress-test results. 

Like the overall fee itself, the changes depend on a borrower’s credit score and down payment. These types of fee changes rarely attract mainstream news coverage, but things were different this time around. News outlets claimed President Joe Biden was hiking mortgage payments for people with good credit to pay for people with bad credit.

Part of the confusion stems from the fact that Fannie and Freddie’s federal regulator, the FHFA, has also ordered the mortgage giants to waive fees for first-time homebuyers of limited means.

Sandra Thompson of FHFA said the cost of providing that break to less affluent homebuyers will largely be supported by the changes announced last April, which raised fees on second homes, “conforming jumbo” mortgages and refinancings where homeowners take cash out of their homes. 

PLEASE NOTE: Across the board, the fee rises as credit scores fall, and people with lower credit scores pay a higher fee than people with higher scores. Also starting May 1, lenders will raise the ceiling on what is considered the highest level of creditworthiness. Whereas a credit score of 740 has been the highest level and the one offering the best terms, that level will be raised to 780. 

It’s more important than ever that you discuss your individual situation with me and your loan officer. As your REALTOR®, I can work with you to make sure you understand your options and have a strong foundation for your purchase. If you need referrals to knowledgeable and reputable good lenders, please let me know, I would be happy to provide them to you.

Consider me your #1 resource for all things Real Estate! Ready to-Transition from renting to owning? Buy an investment property? Combine households? Upsize or downsize your current home? Sell inherited property? Relocate out of the area? Start a home improvement project? Let’s Talk! Just send me an email or call 619-888-2117.

Lisa Ashkins, MA – Broker Associate, DRE#01764182 – First Team Real Estate