Fannie Mae raises prices and tightens guidelines

Fannie Mae has a matrix that they call LLPA; Loan-Level Price Adjustment. The LLPA is a grid that applies to loans delivered to Fannie Mae. LLPAs are assessed based upon certain eligibility or other loan features such as credit score, loan purpose, occupancy, number of units, product type,etc.

Here are some changes. I am using a $400,000 loan amount for the example. For a loan with a loan to value of 70-75% and a credit score in the 720-739 range there was no price hit. Now the price hit is .25% or $1,000.

A person whose new loan is between 80-85% with a credit score of 720-739 used to have no hit and now the hit is .5% or $2,000.00 This person will also need Private Mortgage Insurance.

Also, we were approving loans via a Computerized Desk Top Underwriting System--called D.U.
If D.U. approved the loan then the loan was approved and sometimes the debt ratio could be as high as 50% or even 60% because there were compensating factors. Now Fannie Mae is announcing that they will not purchase loans with a debt ratio of greater than 45%. Here is the spooky part; Customers loan is approved. Customer signs the papers. The loan goes to the bank for funding. The bank now runs another credit check to verify all the data and recompute the debt ratio. If the debt ratio is greater than 45%--even though the loan is approved and the client has signed--Fannie Mae will not purchase the contract ! Ouch !

So, the loans will become a little more expensive and the guidelines are tighter.