04/22/2023
Well done Whittney! Thank you for writing this up!
Sorry… long post, but important…I REALLY dislike misinformation or information packaged in a certain way to meet an agenda or scare people into thinking inaccurate things. You may have seen a headlines stating something like "740 FICO scores have a fee of 1% and 620 FICO scores have a fee DISCOUNT of 1.75%", or something like “with change in LLPA’s lower score borrowers are receiving a larger benefit in the fee charged to them, compared to what the LLPA fees were prior.”
This information is totally misleading! And is setting people off into fear and rage that is not warranted because the information is not being presented accurately. The concept of LLPA’s is confusing enough to your average consumer and this misleading information just makes it worse!
The highlighted boxes in the picture are the exact LLPAs currently being charged. The higher the number the more expensive the fee is and the higher the offered rate of charged discount points will be. So clearly you can see which client pays more for their mortgage…. The one with the 620 score.
While the previous cost for a 740 client with an LTV between 80.01-85% was .25% and it has in fact increased to 1%. So the actual fee 1% (accurate part of the news snippet) but it has only increased by .75%.
The previous cost of a 620 client with an LTV >95% was 3.5%. The new cost of 1.75% is a reduction of 1.75%. But they are still paying 1.75%…which is higher than 1%.
And if you compare apples to apples… the 620 score at the same LTV mentioned above for rhe 740 loan… they would pay 2.875% vs the 1%. And if you take the 740 loan to the same LTV as mentioned above with with the 620 score they would pay 0.5% vs the 1.75%. So higher credit scores still WINS!! Please know the better your credit, the better your loan scenario is!
Now many people ask why the fee is cheaper as the LTV increases, and that is because above 80% your loan is insured by Private Mortgage Insurance, so it offers a lower risk to the investor!
A few additional pieces of info with these changes. 2 additional brackets have been created for FICO scores above 740. Historically 740 is as good as it gets for conventional borrowers. With the new changes, the most prime credit clients will now be rewarded for their excellent credit, but this isn’t being mentioned. And I ask myself why?? What are the news channels trying to do? Let’s all just present honest and accurate information and present both pros and cons!
Another piece of information that no one talks about is that with scores below about a 680, unless your LTV is quite low we don’t use conventional loans. The reason being that most of the time Fannie & Freddie won’t approve them, but also because the rate and fees are so much higher due to the score. We know the clients in these brackets are better suited for FHA loans, especially after the recent MIP reduction. Most borrowers less than 680 looking for greater than 80% LTV are going to receive better rates and lower mortgage insurance with an FHA loan. Life happens and sometimes people end up in these credit situations…and that is OK, but there is loan products designed with FHA specifically to benefit and help these people into homes. Conventional loans are not designed for their situation.
I just want everyone to be educated and not lead their choices moving forward off of inaccurate and scary/misleading information being thrown around right now. .
Please if you have ANY questions about this change or anything else, please reach out to me. I have been doing this for 19 years and I promise I can help you with making sense of things going on in this industry. Happy Friday.
