Mortgage Pricing Adjustments in the News

• May 7, 2023
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The Federal Housing Finance Agency (FHFA) has updated Loan Level Price Adjustments (LLPAs), which are risk assessment fees implemented in the underwriting process before loans are packaged and delivered to Fannie Mae and Freddie Mac. These government Enterprises guarantee most mortgages in the United States, and the changes (announced in January) went into effect May 1, 2023.

Current news is ablaze with commentary on this, because FHFA’s new pricing matrix lowers upfront fees for credit-worthy borrowers with low credit scores, while raising it slightly for some others with higher credit scores. This change narrows the “fee gap” between the highest and lowest credit scores, making home ownership more affordable for more people.

Let’s be clear, it’s not time to max out your credit cards because you think it might get you a lower interest rate on a home loan! It will not. People with higher credit scores will still get better interest rates.

These upfront fee adjustments simply allow more people with low credit scores to qualify for a conventional loan instead of an FHA loan, for example. With an FHA loan, the borrower may have to pay mortgage insurance through the entire life of the loan. On the other hand, in a conventional loan, mortgage insurance can be removed once the borrower reaches 20% equity in the home. 

So, I urge you not to confuse this change in upfront fees with the many factors that affect the final cost of a loan. Know that there is no loan scenario where a lower credit score delivers a lower interest rate.

All borrowers are impacted by:

• Credit score
• Debt-to-Income Ratio – Your monthly debt compared to your monthly income.
• Loan to Value – Home price compared to loan amount, based on your down payment.
• Location and type of home
• Type of mortgage interest – Adjustable, fixed rate
• Type of mortgage loan – Conventional, FHA, VA, USDA, etc.
• Loan Term – 15-year, 30-year, etc.
• Co-Borrowers – Their credit scores, income, etc. will also be reviewed in the loan process.

Click here to read FHFA Director Sandra Thompson’s recent statement, Setting the Record Straight on Mortgage Pricing to dispel some of the confusion on this topic. Of course, if you’re interested in knowing what options are available to you, I encourage you give me a call so we can do a full analysis and find the right loan program for you and your family.