Fannie and Freddie’s 2023 Loan Level Price Adjustment

Fannie Mae and Freddie Mac’s loan-level price adjustment (LLPA) matrix will change on May 1, 2023. Copies of the 2023 matrix that will go into effect can be found here (Fannie Mae) and here (Freddie Mac), while 2022 copies are available for comparison (Fannie Mae and Freddie Mac).

Credit unions that offer mortgage loans should be sure that loans delivered to Fannie Mae and Freddie Mac are in line with the 2023 LLPA matrix.

The specific changes catching the attention of news media outlets is that the 2023 LLPA matrix provides more favorable pricing for borrowers with lower credit scores and smaller downpayments compared to the 2022 matrix. While borrowers with higher credit scores and bigger downpayments will still enjoy overall better pricing and lower fees, they are paying more under the new LLPA matrix compared to 2022.

To better illustrate this point, here is an example of two hypothetical borrowers:

Borrower 1: Credit score of 700 – 719 and loan-to-value (LTV) ratio of 85 – 90 percent.

• Under the 2022 matrix, the borrower would pay an LLPA of 1 percent.
• Under the 2023 matrix, the borrower would pay an LLPA of 1.25 percent.

Borrower 2: Credit score of 620 – 639 and an LTV of 80 – 85 percent.

• Under the 2022 matrix, the borrower would pay an LLPA of 3.25 percent.
• Under the 2023 matrix, the borrower would pay an LLPA of 2.875 percent.

The overall trend is that some borrowers will fare better under the 2023 matrix compared to 2022. A table in this article shows how rates have gone up or down depending on a borrower’s profile. Some other major changes include:

• Increasing the threshold for borrowers to receive the best interest rates. Under the 2022 matrix, borrowers with a credit score of 740 could enjoy some of the best rates. Under the 2023 matrix, borrowers with a credit score over 780 can enjoy the best rates.
• Increased fees for cash-out loans.
• Changes in LLPAs for multi-unit properties.
• Waived fees for certain first-time homebuyers and borrowers.

Why the change? President Joe Biden’s Administration is committed to creating equitable access to housing. The increased fees for certain borrowers is an attempt to cross-subsidize the cost for first-time homebuyers and lower-income households. According to FHFA Director Sandra Thompson, “These changes to upfront fees will strengthen the safety and soundness of the Enterprises by enhancing their ability to improve their capital position over time… By locking in the upfront fee eliminations announced last October, FHFA is taking another step to ensure that (Fannie Mae and Freddie Mac) advance their mission of facilitating equitable and sustainable access to homeownership.”​​

Additionally, please note that the announcement to modify LLPA fees initially included a section on debt-to-income (DTI) ratios. In essence, borrowers with a DTI above 40 percent would pay increased fees under the new matrix. This change was delayed until August 1. A statement from the FHFA on the delay can be found in this news release.

Response to ‘Misconceptions’ About LLPA Updates
Federal Housing Finance Agency (FHFA) Director Sandra Thompson also issued a detailed statement in response to what she says are “misconceptions” regarding fees charged by Fannie Mae and Freddie Mac, as well as an explanation of why the Government Sponsored Enterprises’ loan-level price adjustment (LLPA) matrices are changing.

Director Thompson noted the following:

• Higher credit-score mortgage borrowers are not being charged more so that lower credit-score borrowers can pay less.
• Some updated fees are higher and some are lower — in differing amounts.
• Some individuals have mistakenly assumed that the prior pricing framework was somehow perfectly calibrated to risk despite many years passing since that framework was comprehensively reviewed.
• The new framework does not provide incentives for a borrower to make a lower downpayment to benefit from lower fees.
• The targeted eliminations of upfront fees for borrowers with lower incomes — not lower credit scores — primarily are supported by the higher fees on products, such as second homes and cash-out refinances.
• The changes to the pricing framework were not designed to stimulate mortgage demand.