The Blubber

Starting May 1, 2023, mortgage borrowers with high credit scores may encounter increased costs due to a new Loan-Level Price Adjustment (LLPA) Matrix introduced by federal mortgage associations Fannie Mae and Freddie Mac. The new matrix will result in higher mortgage fees for borrowers with high credit scores, while those with lower credit scores will benefit from reduced fees.

David Stevens, a former federal housing commissioner and former CEO of the Mortgage Bankers Association, described the change as "unprecedented" and noted that mortgage companies and CEOs were shocked by the move.

The impact on monthly mortgage payments is expected to be minimal for most borrowers. For example, a borrower with a $400,000 loan at a 6 percent mortgage rate might see an increase of about $40 per month. However, this translates to an additional $480 per year, and over the life of the mortgage, the total additional cost could amount to thousands of dollars.

Critics argue that it is unfair for borrowers with excellent credit to be effectively penalized, while those with lower credit scores receive more favorable terms. Stevens characterized the change as a "significant cross-subsidy pricing change."

Despite the changes, borrowers with lower credit scores will still pay higher LLPA fees than those with higher credit scores, but the gap will narrow. Under the new rules, borrowers with credit scores from 680 to above 780 will see increased mortgage costs, especially those making a 15% to 20% down payment.

LLPAs are upfront fees determined by factors such as credit score and down payment size. These fees are converted into percentage points that affect the mortgage rate. For example, a home buyer with a 740 FICO credit score and a 15% to 20% down payment will face a 1% surcharge, up from the previous 0.250% fee. Conversely, buyers with credit scores of 679 or lower will see reduced fees and more favorable mortgage rates.

Federal Housing Finance Agency Director Sandra L. Thompson described the change as a step toward promoting equitable and sustainable access to homeownership.