Whats Going On
The Papakea Collection on the Big Island of Hawaii is committed to providing you with accurate and up-to-date information about the real estate market. Recently, there’s been a lot of confusion and concern about a so-called “new” mortgage tax that some claim unfairly targets borrowers with higher credit scores. Before you get swept up in the online hysteria, let’s separate fact from fiction and clarify what’s really going on with Loan Level Price Adjustments (LLPAs).
What are Loan Level Price Adjustments (LLPAs)?
LLPAs are fees imposed by Fannie Mae and Freddie Mac, the two entities that guarantee a majority of new mortgages. These fees are based on loan features such as credit score and loan-to-value ratio. In January 2023, a fairly substantial change to LLPAs was announced, which recently went into effect on loans delivered on or after May 1st, 2023.
Dispelling the Myth:
The changes to LLPAs have led to a misconception that those with lower credit scores are now receiving discounted mortgage rates, while borrowers with higher credit scores pay more. The truth is that these changes have simply narrowed the gap between the fees paid by borrowers with lower and higher credit scores. However, borrowers with lower credit scores still pay more than those with higher scores.
For example, with an 80% loan-to-value ratio, a borrower with a 640 credit score will have an LLPA of 2.25%, while someone with a 740 credit score will have an LLPA of 0.875%. This is a difference of 1.375% or just over $4,000 on a $300k mortgage. While the difference has been reduced, borrowers with lower credit scores are not paying less than those with higher credit scores.
Why Are These Changes Happening?
Fannie Mae and Freddie Mac have a mission to promote affordable homeownership. The Federal Housing Finance Agency (FHFA) announced these updates to the Enterprises’ Single-Family Pricing Framework to better serve this mission. The new LLPAs aim to make homeownership more accessible for those with lower credit scores, particularly for home purchases rather than refinances.
Addressing Another Misconception:
There’s also been some confusion about a new 40-year FHA mortgage. Contrary to popular belief, there is no new 40-year FHA loan. Lenders who collect payments on FHA loans now have the option to offer loan modifications with terms of 40 years to borrowers struggling to pay their existing FHA loans.
Here in Hawaii
a summary of the changes in the real estate market for the Big Island of Hawaii between April 2022 and April 2023:
Overall, there is a decrease in property sales across all categories on the Big Island. Specifically:
- Residential properties saw a 50.61% decrease in sales.
- Vacant Land sales decreased by 59.29%.
- Commercial/MTF sales experienced a 50% decrease.
- Condominium sales declined by 51.72%.
- Business property sales saw a 100% decrease.
The total sales volume for the Big Island decreased by 65.29% in April 2023 compared to April 2022. The year-to-date figures also showed a decrease of 48.54%.
Among the different districts, Puna, South Hilo, North Hilo, Hamakua, North Kohala, South Kohala, North Kona, South Kona, and Ka’u all experienced decreases in sales for most property categories, except for a few instances of increased sales or no change.
In conclusion, the Big Island of Hawaii’s real estate market has experienced a significant decrease in sales and sales volume across all property categories between April 2022 and April 2023. This could indicate a slowdown in the local real estate market, potentially due to factors such as changes in the local economy, real estate demand, or broader market trends.
The data indicates that there has been a significant decrease in sales volume and the number of properties sold across different property types on the Big Island of Hawaii. When analyzing these market trends in relation to the Loan Level Price Adjustments (LLPAs), it’s essential to understand how these adjustments can impact borrowers and the real estate market.
Loan Level Price Adjustments are fees that mortgage lenders apply to loans based on the borrower’s credit risk profile. The adjustments are based on factors such as the borrower’s credit score, loan-to-value (LTV) ratio, property type, and occupancy status, among others. Higher LLPAs result in increased mortgage costs for borrowers considered to be riskier. Consequently, this may lead to fewer potential buyers qualifying for loans, ultimately affecting the real estate market.
Considering the decrease in property sales on the Big Island of Hawaii, it’s possible that new LLPAs have had an impact on the market by making it more challenging for some buyers to secure financing. This may have contributed to the reduction in sales volume and the number of properties sold.
If the real estate market continues to slow down due to increased LLPAs, this may lead to a buyer’s market with more properties available for sale and less competition, potentially resulting in lower property prices. However, it is important to note that there are various other factors, such as the broader economy, local job market, and interest rates, that can also influence the real estate market.
Think About This
Given the current market conditions on the Big Island of Hawaii and the potential impact of Loan Level Price Adjustments, prospective real estate buyers and sellers should consider the following factors:
Market conditions: Research the local real estate market to understand recent trends, pricing, and inventory levels. This will help you make an informed decision about when to buy or sell a property.
Mortgage rates and LLPAs: Keep an eye on mortgage interest rates and Loan Level Price Adjustments. Higher LLPAs can increase the cost of borrowing, while low interest rates can make borrowing more affordable, potentially impacting property prices and demand.
Financial readiness: Buyers should ensure they have a solid credit score, sufficient down payment, and stable income before considering a property purchase. A good credit score can help secure a more favorable mortgage rate and reduce the impact of LLPAs. Sellers should be financially prepared for any potential fluctuations in property prices and be open to adjusting their price expectations.
Property type and location: Different property types and locations may be more or less affected by the current market conditions. Buyers should research which areas and property types are in higher demand or offer better value for their investment. Sellers should highlight the unique features and advantages of their property to attract potential buyers.
Professional advice: Consult with a local real estate agent or financial advisor who is familiar with the Big Island of Hawaii’s market conditions. They can provide personalized advice based on your specific situation and help you navigate the buying or selling process more effectively.
Patience and flexibility: In a fluctuating market, buyers and sellers should be patient and flexible with their expectations. Buyers may need to be prepared to adjust their search criteria, while sellers might need to be open to negotiating on price or other terms.
By taking these factors into account, prospective real estate buyers and sellers can make more informed decisions and better navigate the current market conditions on the Big Island of Hawaii.
About the Author
James T. Morrison, R(S)
James T. Morrison is a Realtor with Knutson & Associates, and part of the Papakea Collection Sales Team. You can email him directly at JTM@Jamesmorrisonhawaii.com or call or text him directly at (808) 339-8249
Licesnse #79190 Realtor
papakeacollection
March 10, 2026
