Loan Level Price Adjustments

[tplannan]

I was wondering if you could explain LLPA’s, and answer the following questions. How LLPA’s impact the borrower with regards to their interest rate and monthly payment, the benefits to borrowers of the new LLPA Waiver program, and how all of this can translate to sales pitches/lead generation when dealing with borrowers who qualify for the LLPA Waiver program?

From my research I understand that LLPA’s are assessed to the Lender and passed onto the borrower. For example, if the LLPA is 0.250 and the lender fee is 1% than the lender fee is reduced to 0.75%. The lender will pass that 0.25% onto the borrower’s interest rate and, by doing so, this effectively increases their Lender fee back to 1%. For example, say the borrowers Interest Rate before the LLPA is at 5%, would it now go up to 5.25% because the LLPA is 0,25%? If that same borrower meets the LLPA Waiver program requirements would their Interest rate stay at 5%?

Thanks for taking the time to read and, hopefully, answer my questions.

[Dustin Owen]

An LLPA is a hit to pricing and not rate. Meaning, if 6% was a par rate but the LLPA is 50bps due to a lower FICO then now the borrower must pay .5% to obtain a 6% rate OR the 50bps needs to be priced into the rate which could increase the rate by .125% – .250%. The same applies in reverse when the LLPA is a credit back to the borrower. (i.e. 60 LTV instead of 80 LTV)

If the borrower is a first time buyer who’s AMI is at or under 100% of their local market AMI when Fannie does not access the negative LLPA’s. Lender’s have the choice to pass that savings back to the borrower or keep that as additional gross revenue to go towards the money they need for operating income.

By the way…we recorded an episode for Friday, 1/27, about LLPA’s. Thank you. 🙂

[Author]

Posts