UPDATE: DECEMBER 23, 2013: Incoming Director of the FHFA, Mel Watts has announced that he will delay the increase to conforming price adjustments (aka LLPA or guarantee fees).
This week Fannie Mae revealed conforming price adjustments (LLPA) which will increase the cost for mortgage rates in 2014. This complied with the Fed beginning to pull back on their bond buying program will certainly cause mortgage rates to trend higher.
Fannie Mae’s new LLPAs go into effect with loans purchaased on or after April 1, 2014 which means that we will see lenders start to factor this into pricing of mortgage rates any time. More pricing tiers have been added to the new LLPAs. For example, the current schedule has three different price points for credit scores of 700 or higher and the new LLPA (highlighted in yellow) has six price levels for credit scores of 700 or higher.
This chart is illustrating the “base” LLPA fees. There are additional price adjustments based on the type of loan and mortgage scenario (for example, investment property or if there is subordinate financing, the cost will be even higher). LLPA’s are accumulative.
How does this price out? Let’s say you have a mid-credit score of 740 and have a 20% down payment, the current LLPA has a price adjustment of 0.25% in fee.
With the new LLPA, based on the very same criteria, the mortgage rate will now have a fee of 0.75%. The same rate will cost a half point more in fee for this scenario. If your loan amount is $400,000, then the increase in cost is $2,000 in points.
What can you do? People who are considering buying a home need to know what their maximum mortgage payment is that they are pre-approved for. The new pricing will either slightly increase the rate or cost for the loan.
Home owners who have been considering refinancing may want to do so sooner than later. The combo of the LLPA’s with the Fed beginning the taper process will cause rates to trend higher.
This is more reason why people who are considering getting a mortgage should start the process early. With the additional layers in pricing, your credit score is even more critical as one digit can make the difference of paying thousands more for the same rate. I often work with my clients to help them improve their credit scores.
If I can help you with your home purchase or refinance for your property located anywhere in Washington state, where I am licensed, please contact me.