
Mortgage Fees Fannie Mae charges a loan-level price adjustment (LLPA) on all mortgages, which represents a fee homebuyers seeking a loan must pay. The rate paid depends on the credit score of the borrower, the amount borrowed, and the loan-to-value (LTV) ratio. The LTV ratio is the ratio of amount borrowed to appraised value of the home. For example, a homebuyer who wishes to borrow
Construct a function
What is the LLPA on a
What is the LLPA on a
(a)

A function
The table shows the LLPA for various credit scores and an LTV ratio of
Answer to Problem 55AYU
Solution:
The function
Explanation of Solution
Given Information:
Fannie may charge a loan-level price adjustment (LLPA) on all mortgages, which represents a must pay fee for homebuyers seeking a loan. The rate paid depends on the credit score of the borrower, the amount borrowed and the loan-to-value (LTV) ratio. The LTV is the ratio of amount borrowed to appraised value of the home.
The table shows the LLPA for various credit scores and an LTV ratio of
Explanation:
Let
Given that,
If the individual with a credit score
That is, the loan-level price adjustment for
Now, if the individual with a credit score
That is, the loan-level price adjustment for
Now, if the individual with a credit score
That is, the loan-level price adjustment for
Now, if the individual with a credit score
That is, the loan-level price adjustment for
Now, if the individual with a credit score
That is, the loan-level price adjustment for
Now, if the individual with a credit score
That is, the loan-level price adjustment for
From (1) to (6),
Therefore, the function
(b)

The LLPA for a borrower whose credit score is
Answer to Problem 55AYU
Solution:
The LLPA on a loan of
Explanation of Solution
Given Information:
Fannie may charge a loan-level price adjustment (LLPA) on all mortgages, which represents a must pay fee for homebuyers seeking a loan. The rate paid depends on the credit score of the borrower, the amount borrowed, and the loan-to-value (LTV) ratio. The LTV is the ratio of amount borrowed to the appraised value of the home.
The table shows the LLPA for various credit scores and an LTV ratio of
Explanation:
From part a)
The function
Since, a borrower credit score is
Therefore, the LLPA on a loan of
(c)

The LLPA for a borrower whose credit score is
Answer to Problem 55AYU
Solution:
The LLPA on a loan of
Explanation of Solution
Given Information:
Fannie may charge a loan-level price adjustment (LLPA) on all mortgages, which represents a must pay fee for homebuyers seeking a loan. The rate paid depends on the credit score of the borrower, the amount borrowed and the loan-to-value (LTV) ratio. The LTV is the ratio of amount borrowed to appraised value of the home.
The table shows the LLPA for various credit scores and an LTV ratio of
Explanation:
From part a)
The function
Since, a borrower credit score is
Therefore, the LLPA on a loan of
Chapter 2 Solutions
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