Your social media feed right now is probably abuzz with claims that the FHFA’s new loan level pricing adjustments (LLPAs) on conventional mortgages favor buyers with bad credit over buyers with great credit. Let's correct the LLPA false claims...
“A 620 FICO score gets a 1.75% fee discount, and a 740 FICO score pays a 1% fee” reads one screenshot from a Fox News segment making the rounds on social.
Here’s the thing: that’s not true!
We’re going to break down the FHFA’s latest loan-level pricing adjustments, most of which are already in effect after being announced in January.
Let’s start with the basics: The pricing grid contains credit bands that correspond with upfront fees based on the mortgage product, loan-to-value ratio, occupancy, etc. Here’s the current model.
Rebecca Richardson, a loan officer at UMortgage, had a smart take on the changes. Let’s take a look at her example, in which the sales price of the home is $400,000 and the scenarios are credit scores of 740, 700 and 660, with corresponding down payments of 3%, 5%, 10%, 15% and 20%.
“People with great credit are not getting penalized, nor are they subsidizing low credit score buyers,” Richardson said in a LinkedIn post. “And that’s primarily because people who were in the downpayment cheat code zone where they were putting more than 15% down but less than 20% had their terms subsidized by cheap mortgage insurance policies, which basically gave them the same terms as somebody who was putting 25% down. To me these changes are more about bringing things in line where the actual risk is based off of downpayment.”
April 26, 2023, 2:02 pm By James Kleimann