Loan-level pricing adjustments are mandatory loan fees based on a borrower’s specific default risk.

First introduced in 2008, LLPAs were Fannie Mae’s and Freddie Mac’s logical response to massive balance sheet losses. At the time, the housing market was deteriorating and mortgage delinquencies were rising.

To “better align with loan risk characteristics”, the two entities created specific fees to be associated to specific loan traits, to be charged to all borrowers.

LLPAs are still in existence today.

Today’s loan-level pricing adjustments can be grouped into 5 basic categories. Application exhibiting any of the 5 traits can trigger LLPAs, adding to a borrower’s loan fees:

1. Credit Score (i.e. the borrower’s FICO is below 740)
2. Property Type (i.e. the subject property is multi-unit)
3. Occupancy (i.e. the subject property is an investment home)
4. Structure (i.e. there is a subordinate/junior lien on title)
5. Equity (i.e. mortgage insurance is required by the lender)

In many respects, loan-level pricing adjustment are similar to auto insurance. All things equal, the driver of a “fast” car will pay higher costs than the driver of a “safe” car.  The same is true for mortgages.

Loan-level pricing adjustments are public information. Fannie Mae publishes the complete LLPA matrix on its website. The chart can be confusing, however. If you have questions about how LLPAs work, talk with your loan officer.

Mark Taylor | Arizona Home Loans | Blarming | Will You Listen to Me | Arizona Short Sales | Arizona Foreclosures | Arizona FHA Loans | Arizona USDA Loans | Real Estate Websites | Arizona HUD Homes | Ariona VA Loans | Fix My Broken Credit | Arizona Mortgage | Arizona Short Sale | Power Ranch Bank Owned Homes