Previous LLPA Adjustments Precede The Current Fix

Mortgage News May 15, 2023

Only a select group of individuals, typically those well-versed in the details of Loan Level Private Adjustments (LLPAs) and the Federal Housing Finance Agency, were aware of the upcoming changes that are now in effect. This group, which includes loan originators, was also privy to recent modifications to the upfront fee system in relation to mortgages.

Rebecca Richardson, a mortgage broker from UMortgage in Charlotte, N.C., is one of the knowledgeable few who truly delve into the intricacies of the mortgage industry. In one of her video tutorials as her “Mortgage Mentor” persona, she jokingly acknowledges that becoming a mortgage broker was not likely a childhood dream for most girls, but her love for middle school algebra and talkative nature were signs of her future career path.

As of today, modifications have been made to the upfront fees charged for loans supported by Fannie Mae and Freddie Mac. These changes aim to create a more fair fee structure that considers the credit scores and down payment amounts of borrowers. The primary goal is to eliminate a loophole that gave an advantage to those who made a down payment between 15% to 19% and paid a small amount for mortgage insurance, by offering them better rates compared to those who made a larger down payment, say 25%.

Richardson and her colleague Nate Fain, who works for UMortgage in Pensacola, previously discussed the specifics of the changes in an interview with Mortgage Professional America. To provide a better understanding of the situation, they also referred to the last major update of Loan Level Private Adjustments (LLPAs) that was related to second homes.

Nate Fain provided insight into why changes were made to the previous “sweet spot”: “Investors were buying up homes that were intended to be primary residences for regular buyers. This was causing a shortage of available homes in almost every market. One way to address this issue is by reducing demand.”

According to Fain, the elimination of that loophole had the intended outcome. After the FHFA made the correction, there was a significant decline of approximately 35% in purchases of second homes.

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