INSIDE INFORMATION
COMPILED BY DANICA LLOYD
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.
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
Borrower’s credit score Loan-to- value ratio Loan purpose Loan term Occupancy
CREDIT SCORE: 660 HIGHER FEES
CREDIT SCORE: 720 LOWER FEES
Number of units
Property type
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.
Loan-to-value ratio (mortgage amount ÷ appraised value)
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%
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.
Increased fees Decreased fees
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