What Biden’s new mortgage rule mean for YOU

Mortgage experts and politicians are rioting over a lending rule review that penalizes homebuyers with higher credit scores in favor of those with lower ratings.

President Joe Biden has come under fire for changing how Loan-Level Pricing Adjustments (LLPAs) are calculated, effectively “taxing” those who have built good credit scores. The new rules take effect on May 1.

In real terms, this means borrowers with good credit — above 740 — can pay as much as $375 more over the long term, while those with poorer scores — below 639 — can save up to $6,000.

The exact amount depends on the buyer’s credit score, the size of the down payment and the value of the property.

Here Dailymail.com breaks down what you need to know…

What is an LLPA and how is it paid?

A loan-level price adjustment (LLPA) is a risk-based fee that is added to a mover’s closing costs.

It effectively covers a bank for any losses on a mortgage.

An LLPA is calculated using a range of factors, including the loan-to-value (LTV) interest rate of the mortgage and the borrower’s credit score.

While a buyer can theoretically pay their LLPA upfront, the vast majority will have the fee added to their mortgage payments as it adds up to very little per month.

The fee was introduced in April 2008 in response to the financial crisis. It does not apply to Federal Housing Administration (FHA), Veterans Affairs (VA), or US Department of Agriculture (USDA) loans.

What is changing?

Fannie Mae and Freddie Mac — who are regulated by the Federal Housing Finance Agency (FHFA) — are changing the matrix they use to calculate buyer LLPA fees.

It means any loan backed by these two organizations will be affected by the change — about 60 percent of the mortgage market, according to the Urban Institute.

The move was designed to help more first-time buyers from less affluent communities enter the housing market.

The average US credit score is 711, according to figures from FICO.

If you have a high credit score, say above 720, you will still pay less than those with a lower rating.

But for those with credit scores below 680, the penalty will be reduced starting May 1.

The hardest hit buyers are those with a credit score of 740-759 and a down payment of 15-25 percent.

Those in this category now face an LLPA worth 1 percent of the market, compared to an old fee of 0.25 percent.

Buyers who can save the most are those with a credit score of less than 639 and a down payment of between 95 and 97 percent.

Movers in this category see their LLPA drop from 3.75 percent of the property’s value to 1.75 percent.

There has also been a small threshold change: previously the lowest category was 620 and below, but that figure is now 639.

How much do these changes cost in dollars?

For example, if you have a credit score of 620 and take out a 95 percent or higher LTV deal on a $300,000 property, you’ll pay a fee equal to 1.75 percent under the new system. It comes out to $5,250.

Under the old system, the same borrower would have had to pay an LLPA worth 3.75 percent of the mortgage — or $11,250. So in total, the borrower has saved $6,000.

However, a buyer with a credit score of 740 who takes out the exact same loan will have to pay $375 more than before.

This is because under the old system, this borrower would pay a 0.25 percent LLPA on a 75 percent LTV loan of $300,000.

This works out to $750. However, the new rules increase this rate to 0.375 percent.

In real terms, this means the buyer is now paying $1,125 in fees.

Is there anything I can do to avoid paying more?

If you have higher credit and want to pay more in LLPAs starting May 1, there are some ways you can avoid the fees.

For example, mortgage experts say it’s not uncommon for the seller to assume the cost of the LLPA in a mortgage interest deduction negotiation.

Last week, Dailymail.com revealed that mortgage interest buyouts are becoming more common as the US real estate market begins to stagnate.

The deals are usually closed only when a house has been on the market for a long time and the seller is having trouble finding a buyer.

This is because it is often cheaper than lowering the cost of the home.

Adam Smith, who runs the Colorado Real Estate Finance Group (CORE), said, “We could start to see more people asking the seller to pay for the LLPA.

“But we’re still in a buyer’s market, so it’s unlikely for now.”