Last week, the FHFA (Federal Housing Finance Agency) announced changes to how conforming mortgages are priced with loan-level price adjustments (LLPAs). Some borrowers will find improved pricing where others will have to pay more in fees. The fees are typically incorporated into the interest rate for the mortgage.
From Fannie Mae’s Lender Letter dated January 19, 2023:
“We are implementing additional changes to our LLPA framework that represent the next step in our effort to increase support for borrowers historically underserved by the housing finance market…”.
This is a continuation of what the FHFA started last year with the higher fees (LLPAs) for mortgages for second homes, high-balance mortgages and cash-out refinances.
A new factor that has been added to the LLPA matrix is a new hit to fee if the loan-to-value is over 60% and the debt-to-income ratio is over 40%.
There are also 3 additional pricing brackets (improvements) for credit scores above 740. It used to be that if your credit score was 740 or higher, that was probably the best pricing you could obtain. Now, depending on the loan-to-value (amount of equity in the home), there are pricing brackets for credit scores of 740-759; 760-779 and 780 or higher.
Effective last month, LLPA waivers were introduced for first-time homebuyers with qualifying incomes equal or less than 100% of the area median income or 120% of the area median income (AMI) in high-cost areas; as well as for HomeReady/Home Possible mortgages and other underserved communities.
The revised LLPA is effective on mortgages delivered to Fannie Mae or Freddie Mac starting on May 1, 2023. This means that we will start to see these fees incorporated into pricing probably sometime in March. Hopefully if inflation continues to show signs of improvement, those with higher fees won’t notice the pinch as much.
Bottom line, it’s more important than ever to start the preapproval process EARLY – especially with the additional price adjustment to debt-to-income ratios over 40%.
If you are considering buying or refinancing your home, I am happy to help you review your options. I have been helping people finance their homes since April 2000.
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