Market Update - April 24th, 2023
“RATES ARE WORSE FOR BORROWERS WITH GOOD CREDIT!!”
Now that I have your attention, let’s all take a collective sigh of relief because this is definitely not happening. We cover the facts about the current loan-level price adjustments on Conventional financing so you can coach your buyers through any anxiety. Check out this week’s “value bomb” that will help you establish new habits to ensure more business in the coming years.
Additionally, be sure to follow us on Instagram and Facebook. We are posting regular content to those platforms to help you and your buyers.
Stronger Credit Scores Still Result in Stronger Rates
On Friday we saw a social media frenzy. We received countless phone calls from worried buyers. Instagram was full of realtors shaming the government for rewarding those with poor credit. Some were going so far as to say buyers should miss a few bills to pull their scores down to get a better interest rate. Please, PLEASE do not advise your clients to do this. The results will be tragic. Let’s dive into the facts since we all know to trust mortgage experts rather than the media, right?
Here are the facts about the loan-level price adjustment updates that we covered back in January that are now being discussed in the media.
The mission of Fannie Mae and Freddie Mac is to make housing more affordable.
A loan-level price adjustment is a fee (can be positive or negative) applied to a loan based on certain credit risk characteristics, such as credit score, loan purpose, occupancy, number of units, down payment, debt-to-income and product type that ultimately affect the interest rate.
Think of it this way, the cost for a particular interest rate will be significantly higher if you’re a 660-credit buyer purchasing an investment property than a 760-credit buyer purchasing that same home as their primary residence.
The changes that have been in effect ahead of the May 1st deadline increased fees for certain bands of borrowers with stronger credit scores and reduced fees for certain bands of borrowers with weaker credit scores. However, this DOES NOT mean a LOWER credit score will result in a BETTER interest rate.
The table below outlines the outright loan-to-value LLPA fees by credit score. You can see that in every loan-to-value scenario, the higher the credit score, the lower the fee resulting in a better interest rate.
Key Takeaway: Was this change necessary? No. Is it being blown out of proportion? Yes. Higher credit scores still result in stronger interest rates no matter the circumstances. Quality lenders have plenty of tools at their disposal to find the strongest loan programs to meet the needs of each client. For example, Home Possible and Home Ready Conventional loans don’t even have LLPAs!
You know what’s going to have a significantly larger, positive impact on ALL borrowers in the future? Lower inflation. When it starts to pull back, interest rates will follow no matter the credit score or loan program. That event will overshadow the marginal changes from these LLPAs.
Mortgage Hack of the Week – Fannie Mae Now Allows Realtor Commission Towards Down Payment
Fannie Mae announced they will allow realtors to use their commission towards their down payment. Freddie Mac has allowed it for years. If you have lower credit, don’t worry, FHA allows commission towards the down payment, too. You’re always helping other people find their dream home. For those of you who still rent, there are no excuses not to jump into homeownership and build wealth 😊
Realtor Value Bomb – 5 Simple Realtor Rules for Success
What can we learn from cutting down a tree that can relate back to being successful as a real estate agent or mortgage lender? Come to find out, quite a bit! We’ve attached a quick document discussing 5 simple ideas you can leverage daily to grow your business. We all have to understand it’s a long game. There are no silver bullets. Work EVERY DAY to make your 2025 self proud!
Instagram Posts from Last Week