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WTF is a Loan Level Pricing Adjustment (LLPA)
Loan level pricing adjustments are set by the Government Sponsored Entities (GSE) — Fannie Mae and Freddie Mac — or their regulator — the Federal Housing Finance Agency (FHFA) at the loan level. This are charged to the lender when the loan is delivered to the GSE for purchase and often, if not always, passed onto the borrower.
Many factors are calculated into your mortgage interest rate, some are fairly straightforward -the loan to value, loan amount, your credit score. Others can be less transparent — occupancy type, loan purpose, number of units in the property being financed and product type.
Sometimes, they are efforts to predict the housing market or future default rates and hedge against these predictions. The last thing lenders want to see are defaults. And with this LLPA being placed on second homes and investment properties, the first to default statistically, we are seeing a prediction that defaults may rise as rental and mortgage forbearance go away.
Late last year we saw the FHFA pass through an adverse market fee on all refinance transactions. Now we are seeing an adjustment for all second homes and investment properties. The bottom line is that they increase the rates offered to you — the borrower.
