Loan-Level Price Adjustments apply to Fannie Mae and Freddie Mac loans (Conventional loans) and are essentially added fees charged by Fannie and Freddie to compensate for certain risk factors inherent in the loan characteristics. Even though LLPAs are costs, they are not passed on to the borrower as a fee, per se, but instead these costs are factored in and returned to the borrower as a higher interest rate. The LLPAs “hit” for items such as:
- Credit score
- Occupancy type (i.e.-Investment)
- Property Type (i.e.- Condo, 2-4 unit, etc)
- Loan Purpose str(Cash Out Refi vs Purchase)
- Additional Subordinate Financing (i.e.- Second lien on top of a First lien)
There are very few scenarios which avoid LLPAs altogether. One scenario is when a borrower with a credit score over 740 purchases a single-family, detached home with a down payment of 40% or more with no subordinate financing. Everyone else is subject to LLPAs.