Your social media feed right now is probably abuzz with claims that the FHFA’s new loan level pricing adjustments (LLPAs) on conventional mortgages favor buyers with bad credit over buyers with great credit.
“A 620 FICO score gets a 1.75% fee discount and a 740 FICO score pays a 1% fee” reads one screenshot from a Fox News segment making the rounds on social.
Here’s the thing: that’s not true!
We’re going to break down the FHFA’s latest loan-level pricing adjustments, most of which are already in effect after being announced in January.
Let’s start with the basics: The pricing grid contains credit bands that correspond with upfront fees based on the mortgage product, loan-to-value ratio, occupancy, etc. Here’s the current model.
As you can see, the grid tops off at a 740 credit score, meaning anyone with a FICO score of 740 would pay the same rate on fees as someone with a score of 780. Under the current model, risk-based pricing (RBP) has been consistent. Generally speaking, the lower the credit score and higher the LTV, the higher the upfront fee to mitigate the risk.
The new model tweaks the risk-based pricing formula in significant ways.
Here’s the new pricing matrix on purchase loans, which goes into effect on May 1 but practically speaking has been in place for more than a month. (This isn’t the grid the GSEs use, but it does show where changes are. Major props to Matthew Graham of Mortgage News Daily for creating this color-coded chart.)
There are new credit bands...
In certain instances, it is evident that misinformation is created and disseminated on social media by exploiting sensitive issues and presenting unverified claims as factual events. Presented bel...