February 21st, 2011 6:11 PM by Dana Bain
Premiere Mortgage Services Inc. www.BainMortgage.com
Fannie Mae (http://www.fanniemae.com/) & Freddie Mac http://www.freddiemac.com/ continue to increase the cost associated with getting a new mortgage or refinance mortgage.
These adjustments are called Loan Level Pricing Adjustments https://www.efanniemae.com/sf/refmaterials/llpa/pdf/llpamatrix.pdf The theory on the LLPA pricing adjustments is loans with less equity or down payments and borrowers with less that perfect credit scores are at a higher risk of default hence the reason for the cost associated to go up. Think of it as insurance as in auto insurance the premium goes up for the riskier driver.
The recent change for a loan term over 15 years assuming an excellent median FICO score http://www.myfico.com/crediteducation/whatsinyourscore.aspx of 740 or greater is now going to require a 75% LTV or 25% down payment or a maximum 75% LTV / CLTV (Loan To Value or Combined Loan To Value- in such cases as there is a second mortgage or home equity line of credit) versus previous guidelines which only required 20% down payment or a LTV of 80%. This pricing adjustment is for both a new purchase mortgage or a refinance mortgage.
Here is the example: Assuming someone is putting down 20% on a $250,000.00 mortgage with a minimum medium FICO score of 740 there would be a pricing adjustment of .25% to the cost of the loan in this example
$625.00 more or an .125% increase to the interest rate. The new requirement to avoid this LLPA pricing adjustment requires 25% down or an LTV/CLTV of 75% with a minimum median FICO score of 740 where the previous guideline only required 20% down or an LTV/CLTV of 80%.
Lending guidelines continue to tighten and these pricing adjustment and larger down payments make owning a home or trying to refinance that much more challenging.
To check on some of the new pricing adjustments see: https://www.efanniemae.com/sf/refmaterials/llpa/pdf/llpamatrix.pdf
For more information please give me a call or email. Dana@BainMortgage.com 978-422-2311