Case Study: How The New LLPA's Will Hurt HIGH FICO Borrowers

Mortgage and Lending with CMG Mortgage, San Diego, CA NMLS 259027

In case you haven't heard, we have some major controversy brewing yet again in the mortgage industry.  The topic is that effective 5/1/23, there will be significant changes to the "pricing adjustments" levied to Borrowers on Conventional (aka Conforming) Loans.

Essentially, HIGH FICO Borrowers will pay MORE than they are currently paying, and LOW FICO Borrowers will be paying LESS than they are normally paying. While HIGH FICO Borrowers will still have more attractive pricing offered to them versus LOW FICO Borrowers, the changes are quite questionable from a myriad of reasons.

For a full explanation of the changes, CLICK HERE.

Below are the CURRENT LLPA's (prior to 5/1/23):

Loan Level Pricing Adjustments (LLPA's)

Case Study:

In referencing the above chart, let's say we have 2 Borrowers purchasing identical Owner-Occupied (O/O) Single-Family-Residence (SFR) homes on the same day for $475,000. Each are putting $75,000 (15.8%) as their down payment, and are thus each borrowing the remaining $400,000 (84.2%) in the form of a mortgage. We refer to this structure as 84.2% Loan-to-Value (also known as LTV).

Let's say Borrower #1 has a 740 FICO (Credit) Score. Per the yellow highlighted area corresponding to both the 740+ FICO and the 80.01 - 85.00% LTV grid, this Borrower would need to pay a 0.250 pricing adjustment.

Let's say the going BASE PRICING had an interest rate of 6.000% available at a cost of 0 points. When we apply the pricing adjustment of 0.250, the interest rate does NOT go from 6.000% to 6.250%, but instead the rate stays at 6.000%, but the cost/points goes from 0 to 0.250.

If our loan amount is $400,000, we compute the 0.250 costs as follows: $400,000 x .0025 = $1,000.00. Thus in this example, Borrower #1 will pay 6.000% with 0.250 points (aka $1,000.00 in extra costs).

Now despite the fact that Borrower #2 is paying the same price on the same day for an identical property, this Borrower has a FICO score of 659. When we find the corresponding pricing adjustment for this borrower on the chart above (640-659  FICO, 80.01 - 85.00 LTV), the pricing adjustment is 3.250% (as shown in green highlight). Using the same computation method as Borrower #1, the math is as follows: $400,000 x .0325 = $13,000.00 for the same interest rate of 6.000%! 

Same interest rate, but Borrower #2 is paying an additional cost of $12,000.00!

In most cases, the Loan Officer would need to adjust the interest rate higher to prevent the Borrower from needing to pay the additional $12,000.00 in costs.  Either way, the lower FICO Borrower is paying more for their PRICING than the higher FICO Borrower due to the pricing adjustments highlighted above.

Below are the new LLPA's (effective 5/1/23)

Loan Level Pricing Adjustments (LLPA's)

Per above, effective 5/1/23, there are new pricing adjustments targeted for implementation. If we use the same example as above, the math is now as follows:

  • Borrower #1 (740 FICO) - now has an adjustment of 1.000, which takes the costs from $1000.00 (0.250) to $4000.00 (1.000). Due to this 5/1/23 change, the HIGH FICO Borrower pays an extra $3,000.00 due solely to the new LLPA and their HIGH FICO!
  • Borrower #2 (659 FICO) - now has an adjustment of 2.500%, which takes the costs from the original $13,000.00 (3.250) down to $10,000.00 (2.500). Due to this 5/1/23 change, the LOW FICO Borrower now pays $3000.00 LESS due solely to the new LLPA and their LOW FICO!

Is the Government causing HIGH FICO Borrowers to subsidize the costs of LOW FICO Borrowers? A good case can be made to support that narrative! Feel free to look at different apples-to-apples comparisons between the 2 charts above. 

Let’s make sure to get our messaging correctly (especially via the soundbites on social media). Higher FICO Borrowers are still paying less in overall PRICING than low FICO Borrowers. With that in mind, despite the fact that HIGH FICO Borrowers are still paying less, the 5/1/23 changes will make the HIGH FICO Borrowers pay more than they are currently paying, while enabling LOW FICO Borrowers to pay less than what they are currently paying. These proposed changes are at the heart of the controversy.

Summary of Changes

Loan Level Pricing Adjustments (LLPA's)

Above is a heat map to help you determine the impacts of these changes at a glance. The greener the highlights, the BETTER the LLPA's are changing. The more red/orange, the WORSE the LLPA changes. Notice the focus of the green positioned at the lower FICO scores and higher LTV’s (aka lower down payment percentages).

How YOU Can Take Action!

CLICK HERE to submit your vote to prevent these LLPA's from taking effect as they are stated above! If you make your voice heard, we may have a shot at overturning these atrocious proposed changes.  LLPA's are supposed to be associated with risk. Are we now punishing HIGH FICO Borrowers (who by nature are less risky in that particular category of measurement) by making them pay higher pricing?

Before you take the stance of these changes punishing the “deserving upper class” you’ll want to realize that the upper class typically has Jumbo (aka Non-Conforming) loans which are NOT impacted by these changes. That said, the “middle class” ends up getting hammered by these changes.


A high percentage of mortgage commercials you view and/or hear via various medias DO NOT (I repeat DO NOT) compute PRICING ADJUSTMENTS into their quotes! Therefore, if you are comparing a CUSTOMIZED PRICING QUOTE (from a presumably ethical & reputation-based Loan Officer) with a 30 second commercial you heard on the radio (with a fast-talking auctioneer-style voice at the end of the commercial rattling off "disclaimers" that you cannot decipher), you are NOT making an informed decision as a Consumer.

Can we please stop punishing ethical Loan Officers who are customizing your quote in favor or blast advertising gimmicks intended to lure you? Let's be better folks, thanks for hearing me out!

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