What High LTV Refinance Pricing Means
High LTV refinance loans come with additional costs that reflect their increased risk. These costs appear as loan-level price adjustments (LLPAs) that get added to your interest rate or paid as upfront fees.
The pricing adjustments vary based on your loan-to-value ratio and whether you choose a 15-year or 30-year term. Higher LTV ratios generally mean higher price adjustments. Fannie Mae publishes these adjustments in their LLPA Matrix, which your lender uses to calculate your final pricing.
Say you're refinancing a home worth $400,000 with a current mortgage balance of $440,000. That puts you at 110% LTV. Your lender will apply the corresponding LLPA from the matrix, which might add 0.75% to your rate or require you to pay several thousand dollars in additional fees.
How Mortgage Insurance Works on High LTV Refinances
The mortgage insurance rules for high LTV refinances depend entirely on whether your current loan has coverage.
If your existing loan has no mortgage insurance, your new loan won't require it either. This applies even if you're refinancing at 120% LTV. The lack of mortgage insurance requirement is one of the key benefits of the high LTV refinance program.
If your current loan does have mortgage insurance, that coverage must continue on your new loan. Your mortgage insurance company will modify your existing certificate and transfer it to the refinance. This might involve issuing a new certificate number, but the coverage itself continues without interruption.
Your mortgage insurer can charge a reasonable fee for this transfer. This fee can be rolled into your new loan balance as long as the total loan amount still meets both Fannie Mae and the mortgage insurer's guidelines.
The transferred coverage must extend for the full life of your new loan. If you're refinancing a 15-year loan that's three years old into a new 30-year loan, the mortgage insurance coverage gets extended to cover the full 30-year term.
Required Documentation and Delivery
Your lender must report specific information to Fannie Mae when delivering your high LTV refinance loan. This includes all standard loan delivery data plus special feature codes that identify the loan type.
For loans underwritten using standard requirements, lenders may use special feature code 839. For loans using the Alternative Qualification Path, they must use code 840. These codes help Fannie Mae track and manage these specialized loans.
Income reporting is required for all high LTV refinance loans, even when there's no maximum debt-to-income ratio. If your payment change is 20% or less and you didn't state income on your application, your lender reports an amount equal to your new monthly payment as your income.
For investment properties and multi-unit primary residences, your lender must report gross monthly rental income regardless of whether you used that income to qualify for the loan.
Why These Rules Exist
Fannie Mae created these specific requirements because high LTV refinances carry different risks than standard loans. The pricing adjustments reflect the increased likelihood of default when borrowers owe more than their home is worth.
The mortgage insurance transfer rules protect both borrowers and the mortgage system. Continuing existing coverage maintains the risk protection that was already in place, while not requiring new coverage for previously uninsured loans prevents additional costs that might make refinancing unaffordable.
The separate delivery and pooling requirements for loans above 105% LTV help Fannie Mae manage these higher-risk loans separately from their standard loan pools. This separation allows for more precise risk management and pricing.
Common Complications and Gotchas
The biggest surprise for many borrowers is discovering they can't get the same pricing as a standard refinance. The LLPAs can add significant cost to your loan, sometimes making the refinance less attractive than expected.
Mortgage insurance transfers can sometimes hit snags if your original insurer has changed their policies or if there are gaps in your coverage history. Some insurers may require additional documentation or impose new requirements during the transfer process.
Timing can be tricky with high LTV refinances. If your home value has dropped since your last appraisal, you might find yourself at an even higher LTV ratio than expected, triggering higher pricing adjustments.
Loans above 105% LTV face additional restrictions in how they can be sold and securitized. This can sometimes limit your lender's ability to offer competitive pricing or may require working with lenders who specialize in these products.
The income reporting requirements can catch borrowers off guard, especially those who qualified using the verification of reserves option. Even though you didn't need to prove income to qualify, your lender still needs to report something to Fannie Mae for their records.
References
For the official guidelines, see B5-7-05: High LTV Refinance Pricing, Mortgage Insurance, and Special Feature Codes in the Fannie Mae Selling Guide.
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Original Fannie Mae Guideline Text
B5-7-05, High LTV Refinance Pricing, Mortgage Insurance, and Special Feature Codes (08/07/2018)
Loan Delivery Requirements
Whole Loan Committing and Pooling of Loans with LTV Ratios Above 105%
Loan-Level Price Adjustments
The LLPAs that are applicable to high LTV refinance loans are detailed in the Loan-Level Price Adjustment (LLPA) Matrix. Caps may apply based on the LTV ratio and amortization term, and excess LLPAs will be waived at delivery.
Mortgage Insurance
The following table provides mortgage insurance requirements for high LTV refinance loans.
If the loan being refinanced...
Then...
does not have mortgage insurance
mortgage insurance will not be required on the new loan.
has existing mortgage insurance
the existing mortgage insurance coverage must be continued on the new loan.
To accomplish this, the mortgage insurer will modify the existing MI certificate and transfer it to the new loan. Such transfer may or may not include assignment of a new MI certificate number. Lenders should check with the mortgage insurer for specific requirements.
Existing loans with financed mortgage insurance are eligible for high LTV refinance loans. There should be no difference in how coverage is continued on the refinance of such loans versus existing loans that do not have financed mortgage insurance. The existing coverage can be continued on the new loan regardless of whether the financed premium on the existing loan was paid as a single premium or a split premium.
Mortgage insurance coverage must extend for the life of the new loan, or until cancellation or termination of coverage as required by law or Fannie Mae guidelines. For example, even if a 15-year loan that is 3 years old is refinanced into a 30-year loan, the mortgage insurance coverage should be extended for the full life of the new loan.
A mortgage insurance company may charge a reasonable fee to transfer the certificate. Fannie Mae allows such cost to be rolled into the UPB of the new loan as a closing cost as long as the loan will still comply with both Fannie Mae and mortgage insurer guidelines. See B7-1-02, Mortgage Insurance Coverage Requirements for additional information.
Loan Delivery Requirements
For high LTV refinance loans, lenders must provide all applicable loan delivery data elements and special feature codes.
The following special feature codes (SFC) may apply:
SFC 839 may optionally be delivered for high LTV refinance loans underwritten using the standard requirements.
SFC 840 is required for high LTV refinance loans that are underwritten using the Alternative Qualification Path.
These codes are to be used in addition to any other special feature codes that may apply.
Income must be reported to Fannie Mae for all high LTV refinance loans at the time of loan delivery even for those transactions where there is no maximum DTI ratio. For high LTV refinance loans with payment changes less than or equal to 20%, the lender must report the stated income on the loan application (if any). If the borrower does not state any income and the lender uses the verification of reserves option as the income source, the lender must deliver the equivalent of the new monthly payment (PITIA) as the “Monthly Income” data element (Sort ID 291).
Note: Lenders must report gross monthly rent in the loan delivery data for all investment properties and two- to four- unit principal residence properties, regardless of whether the borrower is using rental income to qualify for the mortgage loan. See
A3-4-02, Data Quality and Integrityfor additional information.
Whole Loan Committing and Pooling of Loans with LTV Ratios Above 105%
Separate committing is required for high LTV refinance loans with LTV ratios above 105%. These loans may not be delivered against standard whole loan commitments. Specific “High LTV Refi” products are available in Fannie Mae’s whole loan committing application.
High LTV refinance loans with LTV ratios above 105% cannot be included in TBA-eligible MBS, but must be included in pools specifically created for loans with LTV ratios above 105%.
Furthermore, lenders may be able to deliver high LTV refinance loans with LTV ratios above 105% into the respective Fannie Majors pool specifically available for these loans. Due to the separate pool prefixes required for loans with LTV ratios above 105%, these loans may not be delivered into standard TBA-eligible Fannie Majors pools. However, MBS deliveries of loans refinanced under this new option are eligible for securitization utilizing existing Fannie Mae pool prefixes.
