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LLPA changes rescinded as of May 10th

In Buyers, Homeowners, Sellers by Doug Phelps

As you probably already know, The Federal Housing Finance Agency (FHFA), which is the regulator of Fannie Mae and Freddie Mac, announced that they are rescinding the new LLPA (Loan level price adjustment) fees that was going to be required for all borrowers with DTI’s above 40%.  LLPA fee structure changes for conventional loans have had critics since January when the FHFA announced the upcoming changes. However, after a lot of controversy and complaints the FHFA has officially rescinded the LLPA changes as of Wednesday May 10th.  

So what happened?

Overall, this is very good news for lenders and borrowers, as this would have been a major headache for mortgage lenders to manage. Particularly if a person’s DTI (debt to income) ratio changed after they locked their rate, and now they had to have a new fee charged that was not previously expected or disclosed.

Many leaders of big organizations that are reputable in the mortgage and real estate industry, such as MBA (Mortgage Bankers Association) and NRA (National Association of Realtors) didn’t like the changes as they cited issues such as a logistics nightmare and a potential loss of trust between lender and borrower, according to Housing Wire. As real estate and mortgage professionals, the goal is to keep the borrower happy and at ease as they are the ones who are served by the mortgage industry. 

As I’ve mentioned before, the LLPA structure is not new, these changes would just provide a new structure. The existing structure takes into account multiple facets of a loan and a buyer’s financial situation including credit score, down payment and LTV (loan-to-value) ratio. For the LLPA in general, prices across the board are rising for all buyers and low credit scores will still be paying more than buyers with higher credit scores. The penalty for a lower credit score will just be less than it has been in the past but that doesn’t imply that those who have better credit scores are being penalized.

Regardless, buyers felt like they were being taken advantage of and were critical of the changes.  Collectively, buyers also disliked that these fees would have to be locked in while their situation may change. For example, many buyers are actively paying down debt before their mortgage is officially locked which may result in a higher LLPA for some buyers.

With so much outcry from borrowers, lenders and real estate professionals alike, just 10 days after the LLPA was made official, the FHFA rescinded the upfront fees which were based on DTI ratio, specifically for conventional borrowers with DTI levels at or above 40%.  It seems like things are back to normal with the LLPA, but if things change I will let you know and help you to understand how it may impact you. 

How do you feel about the FHFA rescinding the LLPA fees? Are you in the market to buy or sell your home?  Call and text me at (720) 323-4176 or email me at [email protected]

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