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 $250,000 with a credit score of 730 and an LTV ratio of 80% will pay 0.5% (0.005) of $250,000, or $1250. The table shows the LLPA for various credit scores and an LTV ratio of 80%.
Credit Score | Loan-level Price Adjustment Rate |
≤659 | 3.00% |
660–679 | 2.50% |
680–699 | 1.75% |
700–719 | 1% |
720–739 | 0.5% |
≥740 | 0.25% |
(a) Construct a function C = C(s), where C is the loan-level price adjustment (LLPA) and s is the credit score of an individual who wishes to borrow $300,000 with an 80% LTV ratio.
(b) What is the LLPA on a $300,000 loan with an 80% LTV ratio for a borrower whose credit score is 725?
(c) What is the LLPA on a $300,000 loan with an 80% LTV ratio for a borrower whose credit score is 670?
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