Loan Level Price Adjustments and Low Mortgage Rates

Mortgage rates keep pushing on these historical low levels, but not everyone is qualifying for the headline rate from Freddie Mac of “4.57 percent with an average 0.7 point.”

Since April 2009, these federally-mandated wonders called “loan-level price adjustments” (LLPA) have made “today’s mortgage rates” an increasingly tough number to figure out.

LLPA’s are a system to adjust a loan’s rate and/or fees to match the risk.  It’s very similar to how your auto insurance rates are set.  Higher risk equals higher rate.

It’s actually very much like auto insurance.  If your driving history (sort of like credit history) isn’t perfect, you’ll pay more.  If your property is a sports care or a minivan (sort of like an investment 4-flat or a single-family home), you’ll pay different amounts.

In mortgage lending, there are a few characteristics that will play into your mortgage rate:

• Credit Score – typically in groups of 20, 740 FICO, 720 FICO, etc. will all see different rates
• Occupancy – Primary, Secondary and Investment all see different rates
• Property Type – Single Family Homes get the best rates, Condos pay a penalty with less than 25% equity, Multi-family also carries adjustments
• Equity – Loan rates vary based on equity with 30% equity receiving much better rates than 5%
• Loan Structure – those with second mortgages or junior liens may not see the same rate as someone without that second note

More risk, more cost.

If you look at the Chicago home mortgage landscape, it doesn’t take a lot to trigger multiple layers of risk.  If you look at a condo owner with a 719 FICO score at even a 90% loan-to-value, you immediately begin triggering multiple layers of fees.

This is not a big mystery.  If you are not a 740 FICO with 20% on a single-family home, you’re probably going to get historically low rates.  You just may not get the headline rate from the news.  It’s all public information and is available on the Fannie Mae website or chat now and we’ll outline what adjustments may or may not apply to you.