How LLPAs Are Driving Up Mortgage Costs—and What We Can Do About It
Mortgage rates remain high, and affordability is a growing crisis. Meanwhile, Fannie Mae and Freddie Mac are earning billions in profits, partly due to Loan Level Price Adjustments (LLPAs). These fees penalize borrowers unnecessarily, driving up rates and monthly payments. Let’s dive into what LLPAs are, how they work, and how we can fix the system to make homeownership more affordable.
What Are Loan Level Price Adjustments (LLPAs)?
Understanding LLPAs: The Hidden Cost in Your Mortgage
LLPAs are risk-based fees charged by Fannie Mae and Freddie Mac. These fees are added to a borrower’s loan costs based on factors like credit score, loan-to-value ratio (LTV), and property type. They are designed to offset the risk of lending but often penalize borrowers who already qualify for conventional loans.
Example of LLPAs:
“That 0.375% increase in rate means $180 more per month—or $2,160 per year—in mortgage payments.”
A borrower with a 740 credit score and 20% down payment might face an LLPA of 0.875%.
On an $800,000 loan, this translates to an additional $7,000 upfront fee or about 0.375% added to the mortgage rate.
Record Profits on Borrowers’ Backs
Fannie Mae and Freddie Mac: $20 Billion in Profits While Borrowers Struggle
In 2024, Fannie Mae earned $12.8 billion and Freddie Mac $7.8 billion through Q3, despite a significant drop in loan volume. These profits come largely from LLPAs, which generate billions annually.
Borrowers are essentially subsidizing these profits through inflated fees, even though Fannie and Freddie were originally established to make housing more affordable.
The Solution: Simplify LLPAs and Introduce Premium Recapture
How We Can Lower Mortgage Rates for Everyone
Reforming LLPAs and introducing premium recapture could create a fairer system for borrowers while still protecting investors. Here’s how:
Eliminate or reduce LLPAs: Particularly for borrowers with credit scores over 680 and reasonable down payments.
Premium recapture: Borrowers who refinance within 12 months repay the lender for the lost yield. This allows lenders to lower fees and rates without fear of prepayment losses.
Impact:
More affordable rates mean higher homeownership rates and greater access to housing.
Removing a 0.875% LLPA could reduce rates by 0.375%, saving borrowers $180/month on an $800,000 loan.
It’s time to reimagine how LLPAs work. Reforming these outdated fees and introducing innovative solutions like premium recapture could lower rates, reduce payments, and make the American Dream of homeownership more achievable.
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Torrance, CA 90101
United States
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