It’s the 6th Increase in the Past 2 Years
Beginning April 1, 2011, Fannie Mae is increasing its loan-level pricing adjustments. Conforming mortgage applicants in Iowa should plan for higher loan costs in the months ahead.
If you’ve never heard of loan-level pricing adjustments, you’re not alone; they’re an obscure mortgage pricing metric and, thus, are rarely covered by the media. That doesn’t make them any less relevant, however. Rules are rules, whether you understand them or not (for example: the traffic lights through Clive!).
LLPAs are mandatory closing costs assessed by Fannie Mae and Freddie Mac, designed to offset a given loan’s risk of default. LLPAs were first introduced in April 2009.
This April’s amendment is the 6th increase in 2 years. LLPAs can be costly.
In addition to an up-front, quarter-percent fee applied to all loans, there are 5 additional “risk categories” in the LLPA equation:
- Credit Score : Lower FICO scores trigger additional costs
- Property Type : Multi-unit homes trigger additional costs
- Occupancy : Investment properties trigger additional costs
- Structure : Loans with subordinate financing may trigger additional costs
- Equity : Loans with less than 25% equity trigger additional costs
Based on Your “Risk Level” This Could be Quite Costly
Adjustments range from 0.25 points (for having a 735 FICO score) to 3.000 points (for buying an investment property with just 20% downpayment). And they’re cumulative. This means that a borrower that triggers 3 categories of risk must pay the costs associated with all 3 traits.
Loan-level pricing adjustments can be expensive — up to 5 percent or more of your loan size in closing costs. The fees can be paid a one-time cash payment at closing, or they can be paid in the form of a higher mortgage rate.
The loan-level pricing adjustment schedule is public. You can research your own loan scenario at the Fannie Mae website, but you may find the charts confusing.
If you’re uncertain of how these changes might impact you, please reach out to me. All of my contact information is on the right hand side of this update. I love to work with my readers.
