Financial Update by Maurice

Fannie Mae & Freddie Mac have introduced less favorable price adjustments that will be implemented on 4/1/2011.

Fannie Mae & Freddie Mac already have various risk based price adjustments known as LLPAs (Loan Level Price Adjustments). The original intention was to put a higher premium on loans they deemed riskier such as lower credit scores, investment properties, condos with less than 25% equity, etc.

The new LLPAs that go into effect on April 1st seem a bit excessive in some instances. For instance, it used to be that if a borrower had an 800 Fico score and could put 20% down, they were basically “golden.” After April 1st, that same borrower will be subject to a .25% pricing hit if they don’t put at least 25% down. That’s an immediate $1,042.50 in loan costs on a $417,000 loan. The pricing hits steadily increase as the fico scores drop below 740 and can quickly add up to $11,467.50 on the same loan amount for a borrower with a 679 credit score.

What started out as “risk based” pricing seems to have turned into punitive measures across the spectrum of lenders so that’s one more thing to keep in mind for your buyers who are considering a purchase this spring.