Chicago Home Options

Ginger Bonneau

  • Home
  • About
  • Resources
    • First Time Home Seller Tips
    • First Time Home Buyer Tips
  • Reviews
  • Contact Ginger

Simple Real Estate Definitions : Loan-Level Pricing Adjustments

December 16, 2010 by Ginger Bonneau Leave a Comment

Loan-level pricing adjustments add to mortgage costsLoan-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.

Filed Under: Real Estate Definitions Tagged With: LLPA,Risk-Based Pricing

Leave a Reply Cancel reply

Your email address will not be published.

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Ginger

Contact Ginger


Consultant
Office: 312.254.0200
Mobile: 312.608.1125

Connect with Me

Let’s Keep In Touch!

  • This field is for validation purposes and should be left unchanged.

Recent Articles

  • What’s Ahead For Mortgage Rates This Week – March 8, 2021
  • Planning a Move With Your Pets
  • 3 Easy Ways to Put Aside a Bit of Extra Cash So You Can Pay off Your Mortgage Faster
  • Moving On Up: Should You Buy Or Sell First?

Looking For Something?

Categories

Our Location

1586 N. Clybourn
Chicago, IL 60642

Copyright © 2021 · Powered by MySMARTblog