Simple Real Estate Definitions : Loan-Level Pricing Adjustments

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.

Breaking News Loan up to 125% on the HARP or Home Affordable program set to expire June 2011

H.A.R.P. Home Affordable Program

The Home Affordable Program is designed for homeowners who pay their mortgage on time but are not able to refinance because they have little or no equity in their home. But hurry this program is set to expire and many lenders do not understand the program or are too busy with the REFI boom to help you close your loan.

We understand and can help see ATLrates.com or call 770-792-7979  or  Outside Atlanta call 1-800-792-0068

You must meet the following criteria to qualify for the Home Affordable Program:

1. Your current loan must have been sold to Fannie Mae or Freddie Mac.  To find out, contact your current loan servicer or visit: http://www.makinghomeaffordable.gov/loan_lookup.html
   
   
2. During the last 12 months, all of your mortgage payments must have been made within 30 days of the due date.
   
   
3. Your new loan amount may not exceed 125% of the current appraised value of your home. 

To view rates and obtain a good faith estimate for a Home Affordable refinance with ATLRATES.com.


Frequently Asked Questions

If I have a first and a second mortgage, do I still qualify?

As long as the balance due on the first mortgage is less than 125% of the value of the home, you may qualify.  The lender on the second would have to agree to subordinate their loan to the new first mortgage, thereby remaining in second position.

Can I get cash out to pay off debts?

No.  However, provided the new loan amount will not exceed 125% of the value of the home, you may include all closing costs in the new loan so you don’t have to come out of pocket with any cash.

If I’m delinquent on my mortgage, will I still qualify?

No.  Borrowers who are currently delinquent on their mortgage should contact their current lender/servicer and ask about a loan modification.

Will I need mortgage insurance?

If your existing loan does not have Private Mortgage Insurance (PMI), it will not be required as part of your HARP refinance either. If your existing loan has PMI, your HARP refinance will also require it. PMI for this program will only be available through your existing PMI company.

Below are the HARP PMI guidelines of the major PMI companies:

HARP REFINANCE PMI GUIDELINES
Existing PMI Company	Refinance with New Lender	Refinance with Existing Lender
Genworth (Formerly GEMICO)	Max 105% LTV	Max 125% LTV
	45% Max DTI	Per AUS Approval
	New Premium	Same Premium
MGIC	Max 105% LTV	Max 125% LTV
	45% Max DTI	Per AUS Approval
	Same Premium	Same Premium
	.5% Upfront Fee
PMI	Max 125% LTV	Max 125% LTV
	Per AUS Approval	Per AUS Approval
	Same Premium	Same Premium
Radian	Max 105% LTV	Max 125% LTV
	45% Max DTI	Per AUS Approval
	New Premium	Same Premium
UGI	Not Available	Max 125% LTV
		55% Max DTI
		Same Premium
RMIC	Max 105% LTV	Max 125% LTV
	55% Max DTI (41% if Mtg payment increases)	No DTI Requirement
	New Premium	Same Premium

How long will the Home Affordable Program be available?

The program expires on June 30, 2011. Your refinance transaction must be closed and funded on or before that date.

Mandatory Loan Fees Keep Borrowers From Getting Their Absolute Lowest Rate

Conforming mortgage rates may be posting all-time lows this week, but that doesn't mean you'll be eligible for them. You may have already called your loan officer and found this out the hard way.

It's because of a federally-mandated mortgage-pricing scheme known as "loan-level pricing adjustments".

In effect since April 2009, loan-level pricing adjustments are changes to a loan's base rate and/or fee structure based on that loan's inherent risk to Wall Street. It's similar to auto insurance pricing adjustment in that a sports car, all things equal, will cost more to insure than a comparably-priced minivan.

More risk, more cost.

In mortgage lending, loan risk can be loosely grouped into 5 categories. Mortgage applications in Atlanta featuring any of the five traits are subject to price adjustments:

1. Credit Score (i.e. the borrower's FICO is below 740)
2. Property Type (i.e. the subject property is a multi-unit home)
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)

Furthermore, loan-level pricing adjustments are cumulative.

A 3-unit investment home will face larger adjustments than an owner-occupied 3-unit home, for example. It's these adjustments that explain why you may not be eligible for the rates you see advertised online and in the newspapers -- your particular loan may be subject to this risk-based pricing that raises your mortgage rate and closing costs.

The government's loan-level pricing adjustment schedule is public information. See what your lender and how your loan quote is made at the Fannie Mae website. Or, if you find the charts confusing, just call or email your loan officer for help with interpretation.