The Federal Housing Finance Agency recently implemented changes to the loan-level price adjustment structure to help improve housing affordability in the U.S. LLPAs are based on the borrower’s level of risk and allow higher fees to be applied to mortgage prices for riskier borrowers without penalizing less risky borrowers.

LLPAs are primarily used for conventional mortgage loans. They do not apply to everyone purchasing a home.

What is an LLPA?

A loan-level price adjustment is a risk-based fee applied to mortgage loans. They were introduced nationally following the 2008 housing crisis and are calculated based on loan traits such as:
  • Borrower’s credit score
  • Loan-to-value ratio
  • Loan purpose
  • Loan term
  • Occupancy
  • Property type
  • Number of units
Why do they exist?

LLPAs are designed to ensure the price of a mortgage loan reflects the borrower’s level of risk. For example, a borrower with a credit score of 660 will be subject to higher LLPA fees than one with a credit score of 720.

Low-credit borrowers often face higher interest rates or upfront charges so lenders can better manage their risk and the mortgage market is more balanced.

What’s next?

As of May 1, LLPAs were reduced for low-credit borrowers and were slightly increased for those with good credit.

While the gap between what low- and high-credit borrowers pay has gotten smaller, FHFA Director Sandra Thompson said in a news release it’s important to note that high-credit borrowers will still pay less than low-credit borrowers.

These changes resulted from a comprehensive review of Fannie Mae and Freddie Mac’s pricing framework in 2021. One of the objectives of this review was to “maintain support for purchase borrowers limited by income or wealth,” according to the release.

This table shows LLPA fees for purchase money loans based on the borrower’s credit score and loan-to-value ratio. These fees are typically added to the closing costs of a mortgage. Fees highlighted in green have decreased, and those highlighted in yellow have increased since the changes were made earlier this year.