Did High Credit Score Home Buyers Just get Screwed?

The world of real estate can be a mucked up complicated and fucking confusing place, especially when it comes to mortgages and the various costs associated with them. Recently, there has been a lot of talk in the industry (specifically from the right because the move was made under the Biden Administration) about Loan Level Price Adjustments (LLPAs) and their potential impact on buyers. But what the actual fuck are are LLPAs, and why are they good for all buyers?

What are Loan Level Price Adjustments?

LLPAs are adjustments made to the interest rate of a mortgage based on specific risk factors associated with the borrower and the loan. In other words, if a borrower is deemed to be a higher risk, they may be subject to a higher interest rate to compensate for that risk. This is not a new concept, as LLPAs have been used in the mortgage industry for many years. Most of us are used to it, have fucked up credit and get a shittier interest rate. It’s one of the only ways that investors will accept mortgages with imperfect credit profiles. Because one thing is for sure, the people the LEAST interest in taking risks are the people who provide the money to lenders for mortgages.

In 2020 when the pandemic was just breaking out, I was told I was risky trying to borrow $260k despite a solid income, reasonable DTI and 750 credit score because the investors backing loans were freaked the fuck out that the whole house of cards was about to be brought down by the virus. For about two weeks they were adding loan overlays that I hadn’t seen before. They told me that to get $260k I would have to show SIX MONTHS of mortgage reserves on top of my down payment and closings costs just chilling in my bank account or I could get fucked. That’s about $25k… I didn’t have $25k in the bank. Who the fuck does?

Changes to Loan Level Price Adjustments

However, there have been recent changes to LLPAs that are designed to make the process more transparent and equitable for all borrowers. In the past, these adjustments were often applied inconsistently, and borrowers may not have been aware of the specific factors that were contributing to their interest rate. What? You mean the finance industry isn’t going to reveal the way the game is played and just is going to do whatever they want? Yeah, no shit. This lack of transparency could make it difficult for borrowers to understand why they were being charged a certain rate, and could make it harder for them to shop around for the best deal.

The new LLPAs are designed to provide more clarity and consistency in the application of these adjustments. Under the new system, borrowers will be able to see exactly which risk factors are being used to determine their interest rate. This transparency can help borrowers better understand why they are being charged a certain rate, and can help them make more informed decisions about their mortgage options. In other words, you can fix things that specifically help reduce your risk to the lenders and then get a better deal. However, lower down payment borrowers are also seeing their costs go up dramatically. So regardless, having more to put down is going to be the best way for lower credit score borrowers to get the best rate. START SAVING Y’ALL

Under the new system, LLPAs will be based on more granular risk factors, which can help ensure that borrowers are only charged higher rates when there is a significant risk. This can help make mortgages more accessible to a wider range of borrowers, and can help ensure that everyone is treated fairly. So what are the factors that they will consider? Well, it’s of course still a bit of a mystery because we are talking about finance and government here… However, it primarily revolves around the mix of Credit Score, Loan to Value Ratio and the type of Mortgage you are getting. Government backed loans such as FHA, VA and USDA stand to gain the most from these changes.

Overall, the new Loan Level Price Adjustments are a positive development for all buyers. They provide more transparency and consistency in the application of interest rates, which can help borrowers make more informed decisions about their mortgage options. They also help ensure that borrowers are only charged higher rates when there is a significant risk, which can make mortgages more accessible to a wider range of borrowers. While there may be some initial confusion as the industry adjusts to the new system, in the long run, these changes should help create a more fair and equitable mortgage market for everyone.