Mortgage rates are low today, but maybe not for you, specifically.

If you've ever wondered why loan officers can't give you the best "advertised rate", it's not because of a bait-and-switch scheme or something worse.  Most likely, you're being quoted higher mortgage rates because of a government mandate called Loan-Level Pricing Adjustments.

Defining Loan-Level Pricing Adjustment

LLPAs are changes in loan costs based on your personal risk traits.

Fannie Mae and Freddie Mac first introduced loan-level pricing adjustments in April 2008 and they've been a cause of consternation among conventional borrowers since.

Loan-level pricing adjustments tend to surprise people because it's not exactly a Prime Time News-type story; the first time most people hear about LLPAs is at the point of application. A loan-level pricing adjustment can raise an applicant's mortgage rate by a full percentage point or more.

How Are LLPAs Determined

To get deep on LLPAs how they work, let's first talk about auto insurance.

For all of us, there is some base insurance rate for which we all qualify.  It's based on our age, our credit and the ZIP code in which we park the car.  From there, however, adjustments are made -- drive a riskier car, pay a higher premium.  Have a history of accidents, pay a higher premium. Things like that.

The same goes for mortgage loans -- the more the risk, the higher the rate. This is LLPA, defined.

A few of the risk factors that can change a person's mortgage rate include:

• Living in a condo with less than 25% equity in the home
• Having a credit score of less than 740
• Living in a 2-unit, 3-unit or 4-unit home
• Using a home as an investment property
• Doing a "cash out" refinance with less than 40% equity in the home
• Having a second mortgage to subordinate

Each of these traits -- historically -- increases the likelihood of your default.    Therefore, to hedge, Fannie Mae and Freddie Mac charge one-time, pre-set fees to offset a potential future loss.

LLPAs Are Not Discretionary Fees

LLPAs are not discretionary fees; sources of profit or padding.  Nor are they junk fees.  LLPAs are mandatory costs triggered by specific loan characteristics.  There's no flexibility, either.  If you trigger the guidelines, you pay the fees.

The Fannie Mae Loan-Level Pricing Adjustment chart is as thorough as it is punitive. At least borrowers get to choose how they pay them:

1. LLPAs can be paid as a traditional "closing cost", due at closing.
2. LLPAs can be built into an interest rate. In general, interest rates increase 0.250% for each 1 percent of loan-level pricing adjustment.

It doesn't take much to trigger the risk-based pricing of Fannie Mae and Freddie Mac; a lot of conforming mortgage applicants do it.

What To Do If You Trigger LLPA

If you've triggered the LLPA chart and want to know your options, call or . Depending on your loan traits, there may be non-government programs that can give the same great rates as Fannie and Freddie, but without the risk fees.

Be sure to ask me about it.  I answer all my own emails and would be happy to help you however I can.

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Dan Green is an active loan officer. Email or call 513-443-2020. Dan is on Twitter at @mortgagereports.