Beginning April 1, 2011, Fannie Mae is increasing its loan-level pricing adjustments. Conforming mortgage applicants in Nebraska should plan for higher loan costsÂ in the months ahead.
If youâ€™ve never heard of loan-level pricing adjustments, youâ€™re not alone; theyâ€™re an obscure mortgage pricing metric and, thus, are rarely covered by the media. That doesnâ€™t make them any less relevant, however.
LLPAs are mandatory closing costs assessed by Fannie Mae and Freddie Mac, designed to offset a given loanâ€™s risk of default.Â LLPAs were first introduced in April 2009.
This Aprilâ€™s amendment is the 6th increase in 2 years. LLPAs can be costly.
In addition to an up-front, quarter-percent fee applied to all loans, there are 5 additional â€œrisk categoriesâ€ in the LLPA equation:
Adjustments range from 0.25 points (for having a 735 FICO score) to 3.000 points (for buying an investment property with just 20% downpayment). And theyâ€™re cumulative. This means that aÂ borrower that triggers 3 categories of risk must pay the costs associated with all 3 traits.
Loan-level pricing adjustments can be expensive â€” up to 5 percent or more of your loan size in closing costs. The fees can be paid a one-time cash payment at closing, or they can be paid in the form of a higher mortgage rate.
The loan-level pricing adjustment schedule is public. You can research your own loan scenarioÂ at the Fannie Mae website, butÂ you may find the charts confusing.
Phone or email your loan officer if youâ€™re unsure of what youâ€™re reading.
If you are buying a home in Nebraska, I am happy to help you understand your scenario and corresponding interest rate adjustments.