Mortgage Fees Rising in Coming Months, Even for Good Credit Borrowers

By Kyle Chezum Updated on 1/25/2011

1/25/11

Mortgage fees are nothing new.  Among the fees charged when closing a loan, many borrowers are required to pay a loan-level price adjustment (LLPA).  This fee is charged to bring down the overall risk associated with releasing the mortgage money.  LLPAs are typically levied upon high-risk borrowers only.  The new fee structure, which will take effect April 1, will require lenders to charge this fee to many more borrowers, including those with good credit.

Fannie Mae has increased LLPAs multiple times over the past few years.   The difference this time is that the new fees will affect borrowers with good credit rather than solely high-risk borrowers.  This may increase buyer hesitation in some cases.

In a document on its website, Fannie Mae offers some insight into how these fees are calculated.  “LLPAs are assessed based upon certain eligibility or other loan features, such as credit score, loan purpose, occupancy, number of units, product type, etc.”  The new fee structure tightens many of these standards.  Fannie Mae releases information on this fees structure to borrowers on a regular basis, and many lenders have already begun to incorporate the fees into their rates and terms.

With this fee update, borrowers who put down 20% of the home purchase price and possess a credit score of 740 or less will have to pay the fee, which can amount to $1,600 or more.  A borrower with a 740 credit score, which is considered a good score, would not have paid this fee in previous years.

The change will affect consumers in a number of ways.  First, not all lenders charge LLPAs.  An increase in the weight of this fee will motivate more borrowers to put more effort into comparing lenders and finding the best deals.  In addition, borrowers will likely try to build and repair credit scores before seeking loans, as the difference between merely good credit and excellent credit is substantial.  The increase in fees will likely bump mortgage rates slightly higher as well, as lenders try to build new costs into their pricing structures.

Expert economists caution consumers not to react too rashly to news of the fee hike, as the added costs likely won’t affect mortgage rates and expenses too significantly.