Special offer

Loan Fees will increase again April 1st!

By
Mortgage and Lending with Platinum Funding Group, Inc.NMLS-243033 NMLS 4195

Beginning April 1, 2011, Fannie Mae is increasing its loan-level pricing adjustments. Conforming mortgage applicants in California should plan for higher loan costs in the months ahead.

If you’ve never heard of loan-level pricing adjustments, you’re not alone; they’re an obscure mortgage pricing metric and, thus, are rarely covered by the media. That doesn’t make them any less relevant, however.

LLPAs are mandatory closing costs assessed by Fannie Mae and Freddie Mac, designed to offset a given loan’s risk of default. LLPAs were first introduced in April 2009.

This April’s amendment is the 6th increase in 2 years. LLPAs can be costly.

In addition to an up-front, quarter-percent fee applied to all loans, there are 5 additional “risk categories” in the LLPA equation:

  1. Credit Score : Lower FICO scores trigger additional costs
  2. Property Type : Multi-unit homes trigger additional costs
  3. Occupancy : Investment properties trigger additional costs
  4. Structure : Loans with subordinate financing may trigger additional costs
  5. Equity : Loans with less than 25% equity trigger additional costs

Adjustments range from 0.25 points (for having a 735 FICO score) to 3.000 points (for buying an investment property with just 20% downpayment). And they’re cumulative. This means that a borrower that triggers 3 categories of risk must pay the costs associated with all 3 traits.

Loan-level pricing adjustments can be expensive — up to 5 percent or more of your loan size in closing costs. The fees can be paid a one-time cash payment at closing, or they can be paid in the form of a higher mortgage rate.

The loan-level pricing adjustment schedule is public. You can research your own loan scenario at the Fannie Mae website, but you may find the charts confusing.

Comments (3)

Victor Zuniga
Berkshire Hathaway Home Services California Properties - San Diego, CA

Buyers that are still sitting on the fence are going to encounter a different financing climate once they do decide to move forward.

Mar 11, 2011 11:11 AM
Dan Chapman
The Legacy Group - Santa Clarita, CA
Dan Chapman Mortgage Pro

Good post Tiffany, yes with that and the new compensation rule by the Fed all loans are going to be more expensive for the borrower.

Mar 30, 2011 08:53 AM
Tiffany Taylor
Platinum Funding Group, Inc.NMLS-243033 - Irvine, CA
Platinum Funding Group

Unbelievable ruling today on the Fed Compensation Rule!  Sad day for all Mortgage Loan Borrowers!

Mar 30, 2011 07:51 PM