New Biden Admin Plan Raises Mortgage Costs for Borrowers with Good Credit Scores to Subsidize Others
Homeowners who have achieved a good credit score will be penalized under a new Biden administration rule.
A Federal Housing Finance Agency rule change that takes effect May 1 will impact Americans when federally backed mortgage outfits such as Fannie Mae and Freddie Mac sock buyers with what are called loan-level price adjustments, according to The Washington Times reported Tuesday.
The change will hit home buyers with a FICO credit score of 680 or above.
“It’s unprecedented,” David Stevens, a Federal Housing Administration commissioner during the Obama administration, said, according to the New York Post. “My email is full from mortgage companies and CEOs [telling] me how unbelievably shocked they are by this move.”
Stevens estimated a buyer taking out a $400,000 loan with a 6 percent mortgage rate would pay $40 more per month. Over the 30-year term of a mortgage, that would come out to $14,400.
Buyers with lower credit scores get lower fees under the plan. According to the Post, a buyer with a 620 FICO credit score who antes up a down payment of 5 percent or less will get a 1.75 percent fee discount.
“This was a blatant and significant cut of fees for their highest-risk borrowers and a clear increase in much better credit quality buyers – which just clarified to the world that this move was a pretty significant cross-subsidy pricing change,” Stevens said.
The rule also hits Americans trying to refinance mortgages, according to the Times.
“The changes do not make sense. Penalizing borrowers with larger down payments and credit scores will not go over well,” said Ian Wright, a senior loan officer at Bay Equity Home Loans in California.
He said the rule will “cause customer-service issues for lenders and individual loan officers when a consumer won’t understand why their interest rate and fees suddenly changed.”
“I am all for the first-time buyer having a chance to get into the market, but it’s clear these decisions aren’t being made by folks that understand the entire mortgage process,” Wright said.
In a LinkedIn post cited by the Times, Stevens wrote, “Why was this done? The answer is simple, it was to try to narrow the gap in access to credit especially for minority home buyers who often have lower down payments and lower credit scores.
“The gap in homeownership opportunity is real. America is facing a severe shortage of affordable homes for sales combined with excessive demand causing an imbalance. But convoluting pricing and credit is not the way to solve this problem,” he said.
Biden appointee Sandra Thompson, who heads the Federal Housing Finance Agency, said the changes will “increase pricing support for purchase borrowers limited by income or by wealth.”
The Las Vegas Review-Journal castigated the rule in an editorial Monday.
“The point of all this is to promote the progressive version of ‘equity’ — of course,” it said. “Poorer people, particularly in minority communities, often have lower credit scores, making it more expensive and difficult to get a housing loan. Transferring the costs of riskier loans to more credit-worthy buyers is supposed to level the playing field.
“Yet precisely like the Biden gambit on student loan forgiveness, it would punish people who sacrificed, played by the rules and have a history of paying their bills on time, further chipping away at the importance of individual agency.”
“It also makes it easier for lenders to increase portfolio risk, increasing the chances of a housing meltdown. Did politicians learn nothing from 2008?” the editorial said, calling on congressional Republicans to try to block the rule.
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