I was quoting rates to an investor client today and had a chance to examine the effects of the new Loan Level Pricing Adjustments announced by Fannie Mae last week. The client is putting 25% down and has a mid Fico score of 6.72.
The “adjustments” to the published rates included 1.75% for investment property and a 2.0% adjustment for her Fico score. Now ordinarily, lifting the interest rate will eliminate one point in fee for each quarter point we elevate the rate. Thus, raising today’s 5.25% 30 year rate to 5.5% would reduce the 3.75 total adjustment to 2.75 points, and so on.
Unfortunately, with the way banks are pricing loans today, that formula is obsolete. There is a one to one ratio between interest rate and points at the moment, and so this loan will require that the investor pay several points at least for a rate in the 6-7% range.
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