Saturday Morning Coffee with CFG

Chocolatiers have built a replica bust of King Charles out of nearly 3,000 chocolates for the king’s coronation on May 6. What’s the bigger risk, the bust melting or a half-asleep late-night fridge raid?

In this edition, new Fannie Mae LLPA myths debunked, NFL draft picks making bank and a busy week for the economic calendar.

Fuel Up! 🚀

Purchase Power For NFL Draft Picks The NFL draft began Thursday, and according to Spotrac.com, the Carolina Panthers’ first overall pick will stand to make over $30M between his signing bonus (~$27M) and his first year’s salary (~$3.5M). If their selection were to buy the average home in the Charlotte area ($395,500), that would eat up just 1.3% of his projected first-year earnings. With that in mind, which picks would spend the least and greatest percentage of their first-year earnings on the average home in their MSA? For the second straight year, Detroit’s first pick would spend the smallest percentage of his first-year earnings on a home – just 1.1% of his projected $21.9M would go toward the average home price of $237,000. On the other side, San Francisco’s first pick (as of Thursday morning) is pick 99, which comes with a substantially smaller signing bonus and annual salary. As a result, almost 60% of that pick’s projected first-year earnings would be eaten up by the $1.23M average home price in the San Francisco MSA. Economic Calendar Rundown The Case-Shiller home price index unexpectedly rose 0.2% in February, breaking the index’s 7-month streak of decreasing home prices. As mortgage rates dipped, new home sales boomed in March, up 9.6% from February versus the expected 1.1% decline. While new home sales flourished, pending home contracts on existing homes tanked, dropping 5.2% in March as inventory levels impeded sales activity.

Earlier this year, Fannie Mae announced changes to loan level pricing adjustments (LLPAs). An LLPA is a risk-based pricing adjustment applied by Fannie Mae based on certain loan-level characteristics such as loan purpose, product types, credit score or loan-to-value (LTV) ratio. The new fee structure affects loans delivered on or after May 1st, 2023. Lenders have begun to implement these changes, which has started to generate noise in the industry. As shown in the figure below, the new LLPAs will still be significantly better for clients with higher credit scores. New LLPA Fee Matrix Source: Fannie Mae So where is the noise coming from? When compared to LLPAs currently in place, the new adjustments are slightly higher for borrowers with higher credit scores, and slightly lower for those with lower scores. LLPA Fee Changes By Credit Score Source: Mortgage Daily News As we can see from the figures above, the change in LLPAs from previous fees are indeed going up for some higher credit borrowers, especially for those with LTVs in the 80 – 95 range. However, we do not recommend skipping your credit card payments just yet. Low credit borrowers will still have larger (more expensive) pricing adjustments – but the gap between high and low credit borrowers will be smaller in some instances. The Federal Housing Finance Agency released a statement on Tuesday to clear up the confusion, asserting “Higher-credit-score borrowers are not being charged more so that lower-credit-score borrowers can pay less. The updated fees, as was true of the prior fees, generally increase as credit scores decrease for any given level of down payment.” The agency even went so far as to include an individual contact, so if you have any questions or just want to tell him he’s doing a great job, reach out to Adam at Adam.Russell@FHFA.gov.

1. National Association Of REALTORS’ Stance On New LLPAs
2. Low-Income Homebuyers Are Less Likely To Migrate From Cities
3. FHFA House Price Index Up 0.5% In Feb.
4. Residential Sales March 2023
5. Real Gross Domestic Product Comes In At 1.1% Annual Rate

Josh Wescott’s 22-second solve was 13 seconds faster than the next best time, earning him top spot in last week’s puzzle. Shoutout to all six who completed the puzzle in less than a minute! This week’s puzzle gets 3 Rockets out of 5. Click here to solve! Good luck!