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FHFA Loan Level Price Adjuster Clarification

Tuesday, April 25, 2023

We understand that recent media articles may have caused some confusion and concern regarding the FHFA's decision to change the structure of their Loan Level Price Adjusters (LLPAs). However, we want to reassure our customers that these changes are not as concerning as some are making them out to be. In fact, these changes are providing opportunities to expand homeownership.

Firstly, it's important to note that these changes have already been in effect for several weeks now. This means that there won't be any sudden spikes or drops in mortgage this week, as some have suggested. Most lenders have been using the new adjustors for many weeks now without much fanfare.

We also want to clarify that there are no circumstances where customers with a lower credit score or down payment are now getting a better rate than customers with a higher credit score or down payment. While the FHFA has lowered many of the LLPAs on customers with lower credit scores or down payments and raised the adjustments for many customers with higher credit scores or down payments, it has resulted in a narrowing of the rate gap between credit profiles, not inverting them.

To better illustrate this point, let's consider an example. Suppose a client had a conforming loan amount with 20% down and a 780 FICO before the new LLPAs went into effect in February. In this scenario, they may have received a 6.50% rate. Using those same rates and just changing the adjuster, they would be at 6.75%. So, the rate has gone up by about a quarter point.

Now, let's consider a client with 5% down and a 640 FICO before the adjustments went into effect. In this case, they may have received a 7.50% rate, a full point higher than the customer with a better credit score. Today, they may receive 7.25%, half a point higher than the customer with better credit received. As you can see, the rate gap has narrowed, but the customer with the higher credit score is still receiving a better rate in this example. All of this helps create opportunity for more people to become homeowners.

In summary, we want to reassure you that these recent changes are not as concerning as they may seem and in fact offer opportunities for more homebuyers. We hope this provides some peace of mind and clarification surrounding these recent changes.

Prosperity Home Mortgage, LLC does not offer financial advice. This information is provided for informational purposes only and does not constitute legal, tax, or financial advice. Prosperity Home Mortgage, LLC is not a credit counselor. Information displayed is not credit advice and should not be relied upon or interpreted as such.
Interest rate and annual percentage rate (APR)are based on current market conditions as of 4/24/2023, are for informational purposes only, are subject to change without notice and may be subject to pricing add-ons related to property type, loan amount, loan-to-value, credit score and other variables. Estimated closing costs used in the APR calculation are assumed to be paid by the borrower at closing. If the closing costs are financed, the loan, APR and payment amounts will be higher. If the down payment is less than 20%, mortgage insurance may be required and could increase the monthly payment and APR. Contact us for details. Additional loan programs maybe available. Accuracy is not guaranteed and all products may not be available in all borrower's geographical areas and are based on their individual situation. This is not a credit decision or a commitment to lend.

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