INSIDE INFORMATION
INSIDE INFORMATION
COMPILED BY DANICA LLOYD
COMPILED BY ERIC WEILBACHER
2023 HOME EDITION
RATE CHANGES The Federal Reserve can combat in ation by increasing interest rates or stimulate the economy by lowering them. Over the past 20 years, the rate has uctuated between 0% and 5.25%.
WHAT IS AN LLPA?
WHAT'S NEW?
WHY DO THEY EXIST?
A loan-level price adjustment is a risk-based fee applied to mortgage loans. They were introduced nationally following the 2008 housing crisis and are calculated based on loan traits such as:
LLPAs are designed to ensure the price of a mortgage loan re ects the borrower’s level of risk. For example, a borrower with a credit score of 660 will be subject to higher LLPA fees than one with a credit score of 720.
As of May 1, LLPAs were reduced for low-credit borrowers and were slightly increased for those with good credit. While the gap between what low- and high-credit borrowers pay has gotten smaller, FHFA Director Sandra Thompson said in a news release it’s important to note that high-credit borrowers will still pay less than low-credit borrowers. These changes resulted from a comprehensive review of Fannie Mae and Freddie Mac’s pricing framework in 2021. One of the objectives of this review was to “maintain support for purchase borrowers limited by income or wealth,” according to the release.
Peak interest rates
6%
The Federal Housing Finance Agency recently implemented changes to the loan-level price adjustment structure to help improve housing a ordability in the U.S. LLPAs are based on the borrower’s level of risk and allow higher fees to be applied to mortgage prices for riskier borrowers without penalizing less risky borrowers. SOURCES: FANNIE MAE, FREDDIE MAC, FEDERAL HOUSING FINANCE AGENCY COMMUNITY IMPACT
2003 After the 2001 recession, interest rates begin to climb up as the economy recovers.
Borrower’s credit score Loan-to- value ratio Loan purpose Loan term Occupancy
As market values have decreased over the last year, interest rate increases from the Federal Reserve System Federal Open Markets Committee have continued. Interest rate increases occurred after almost every meeting of the group for the past 14 months. HOW IS YOUR INTEREST RATE DETERMINED? When applying for a mortgage or other type of loan, the federal funds rate serves as the baseline for determining an interest rate. FEDERAL FUNDS RATE Current rate target: 5%-5.25%* What is it? This is the interest rate banks use to lend money to each other overnight. Banks are legally required to keep a certain percentage of their customers’ money on reserve, prompting banks to aim for keeping enough money on reserve without going under their limit. Why change the rate? This is used by the Federal Reserve to both control the supply of money available and keep in ation in check. As the rate goes up, it becomes more expensive to borrow money or take out a loan. *AS OF JUNE 14
CREDIT SCORE: 660 HIGHER FEES
CREDIT SCORE: 720 LOWER FEES
5%
2022 The Federal Reserve begins ratcheting up rates in response to record in ation.
Number of units
Property type
4%
Low-credit borrowers often face higher interest rates or upfront charges so lenders can better manage their risk and the mortgage market is more balanced.
NOTE: LLPAS ARE PRIMARILY USED FOR CONVENTIONAL MORTGAGE LOANS. THEY DO NOT APPLY TO EVERYONE PURCHASING A HOME.
2020 In response to the economic fallout of the coronavirus pandemic, rates are again slashed to e ectively zero.
3%
Loan-to-value ratio (mortgage amount ÷ appraised value)
2008 In response to the 2008 Great Recession, interest rates are slashed.
CREDIT SCORE ≤ 30% 30.01-60% 60.01-70% 70.01-75% 75.01-80% 80.01-85% 85.01-90% 90.01-95% >95% ≥ 780 0% 0% 0% 0% 0.375% 0.375% 0.25% 0.25% 0.125% 760-779 0% 0% 0% 0.25% 0.625% 0.625% 0.5% 0.5% 0.25% 740-759 0% 0% 0.125 0.375% 0.875% 1% 0.75% 0.625% 0.5% 720-739 0% 0% 0.25% 0.75% 1.25% 1.25% 1% 0.875% 0.75% 700-719 0% 0% 0.375% 0.875% 1.375% 1.5% 1.25% 1.125% 0.875% 680-699 0% 0% 0.625% 1.125% 1.75% 1.875% 1.5% 1.375% 1.125% 660-679 0% 0% 0.75% 1.375% 1.875% 2.125% 1.75% 1.625% 1.25% 640-659 0% 0% 1.125% 1.5% 2.25% 2.5% 2% 1.875% 1.5% ≤ 639 0% 0.125% 1.5% 2.125% 2.75% 2.875% 2.625% 2.25% 1.75%
2%
This table shows LLPA fees for purchase money loans based on the borrower’s credit score and loan- to-value ratio. These fees are typically added to the closing costs of a mortgage.
1%
0%
Increased fees Decreased fees
SOURCES: FEDERAL RESERVE, CONSUMER FINANCIAL PROTECTION BUREAU, FREDDIE MAC COMMUNITY IMPACT
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TOMBALL PARKWAY 28595 Tomball Pkwy (281) 290-7810 SPRING STUEBNER 6603 Spring Stuebner Rd (281) 288-0239
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