We understand that recent media articles may have caused some confusion and concern regarding the FHFA's decision to change the structure of their Loan Level Price Adjusters (LLPAs). However, we want to reassure our customers that these changes are not as concerning as some are making them out to be. In fact, these changes are providing opportunities to expand homeownership.
Firstly, it's important to note that these changes have already been in effect for several weeks now. This means that there won't be any sudden spikes or drops in mortgage this week, as some have suggested. Most lenders have been using the new adjustors for many weeks now without much fanfare.
We also want to clarify that there are no circumstances where customers with a lower credit score or down payment are now getting a better rate than customers with a higher credit score or down payment. While the FHFA has lowered many of the LLPAs on customers with lower credit scores or down payments and raised the adjustments for many customers with higher credit scores or down payments, it has resulted in a narrowing of the rate gap between credit profiles, not inverting them.
To better illustrate this point, let's consider an example. Suppose a client had a conforming loan amount with 20% down and a 780 FICO before the new LLPAs went into effect in February. In this scenario, they may have received a 6.50% rate. Using those same rates and just changing the adjuster, they would be at 6.75%. So, the rate has gone up by about a quarter point.
Now, let's consider a client with 5% down and a 640 FICO before the adjustments went into effect. In this case, they may have received a 7.50% rate, a full point higher than the customer with a better credit score. Today, they may receive 7.25%, half a point higher than the customer with better credit received. As you can see, the rate gap has narrowed, but the customer with the higher credit score is still receiving a better rate in this example. All of this helps create opportunity for more people to become homeowners.
In summary, we want to reassure you that these recent changes are not as concerning as they may seem and in fact offer opportunities for more homebuyers. We hope this provides some peace of mind and clarification surrounding these recent changes.