With all the talk about the QRM rule definition and the impact it will have on the housing market, another hurdle is flying under the radar. Adam Rust from the Community Reinvestment Association of North Carolina (CRA-NC) has written a report about the other hurdle to home ownership, Loan Level Pricing Adjustments.
In short, these pricing adjustments are loan fees added to the cost of a loan that take into account the risk of the borrower. This fee is designed to better assess the risk of a borrower and apply that cost to a loan. The adjustment takes into consideration 5 key points: Credit Score, Property Type, Occupancy, Structure, and Equity. Here is the breakdown of this adjustment as provided by Fannie Mae.
This adjustment does not take things like moving loans to FHA, the disparate impact on protected classes, and the use of private mortgage insurance into account. Without taking these into account these adjustments can price out low wealth and minority communities from home ownership, and move more of the burden to FHA. Just the QRM debate this also could have an impact on the rental market.
If you want to dig deeper into the topic I encourage you to read the report: The New Hurdle to Home Ownership