Home Loan Information Home Loan Information From A Former Industry Insider

FHA Lenders Charging Higher Interest for Lower Scores

Although we do not sell to Chase, CITI, Countrywide (Bank of America) or Wells Fargo I have been told by others at my level in the industry who do these mega-lenders will now or soon be charging higher interest on FHA loans to people with lower credit scores. This is called Loan Level Pricing Adjustment and is meant to combat high risk lending. One unintended consequence is that the raising of the rate could cause the debt-to-income ratio to go out of range. That is an unlikely scenario considering the size of the LLPA but it could happen.

Since lenders are somewhat like lemmings you can rest assured all, or at least the vastly greater majority, of them will soon be following suit and adding their own LLPAs forthwith. What this means for you as a buyer, home owner looking to refinance, or real estate agent dependent on FHA loan solutions for marketing your services is you’ll want to move perhaps a little more quickly than anticipated.

Here is a verbatim quote from an industry insider regarding LLPAs at his company:

620 – 659 (.250) – means borrowers with scores this low (either borrower) pay a higher interest rate
660 – 719 (000) – means borrowers with scores in this range pay the marked interest rate
720 + ? ? .250 - means borrowers with scores in this range pay a lower interest rate

What it ultimately means for the borrower is take care of your credit. Pay your bills on time, do not ever extend your credit and babysit your scores. We at Novation do not currently have any LLPA on FHA home loans.

I am available for questions at any time. Ken Cook 678-946-0101

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