A new rule from the Biden administration will effectively push the “equity” agenda into the housing and mortgage markets at the expense of home buyers with good credit.
The rule, set to go into effect on May 1, has been met with criticism from housing experts who argue it will force good-credit home buyers to pay more for their mortgages to subsidize loans for higher-risk borrowers. The Federal Housing Finance Agency (FHFA), which oversees federally backed home mortgage companies Fannie Mae and Freddie Mac, has implemented these new rules in an effort to provide more affordable housing options for lower income buyers and those with poor credit scores.
Essentially, Fannie Mae and Freddie Mac will enact changes to fees known as loan-level price adjustments (LLPAs)
LLPAs are upfront fees primarily based on the size of a borrower’s down payment and credit score. Typically, the fees are converted into percentage points that change the buyer’s mortgage rate.
Under the new rules, borrowers with a credit score of about 680 could pay around $40 more per month on a $400,000 mortgage, according to a Washington Times report. The additional fees would total $14,400 over the life of the loan. That is hardly a small fee.
These additional costs will help subsidize mortgages for people with lower credit scores of 679 or lower. These borrowers will have their fees slashed, resulting in better mortgage rates.
Critics argue that the changes are confusing and penalize borrowers with larger down payments and better credit scores.
Ian Wright, a senior loan officer at Bay Equity Home Loans, told the Washington Times that the changes “do not make sense” and would “overcomplicate things for consumers during a process that can already feel overwhelming.” He added, “Confusing the borrower is never a good thing.”
David Stevens, a former commissioner of the Federal Housing Administration during the Obama administration, also expressed his disapproval, stating in a social media post that the new rules would “frustrate and confuse people.” He noted that the timing of the changes is particularly troubling, as the housing market has been struggling in the wake of multiple interest rate increases by the Federal Reserve.
Despite the backlash, FHFA Director Sandra Thompson has defended the new rules, stating they are designed to “increase pricing support for purchase borrowers limited by income or by wealth” and come with “minimal” fee changes.
“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 rules are intended to enable potential buyers with lower credit ratings and less money for a down payment to qualify for better mortgage rates than they would have otherwise received.
While Stevens acknowledged a gap in opportunity for low-income and minority borrowers to qualify for affordable homes, he argued that manipulating prices is not the solution.
He said, “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.”
As the housing market continues to struggle, critics argue that this approach to addressing homeownership disparities is not the right solution. Instead, they propose focusing on addressing the shortage of affordable homes and rebalancing supply and demand in the market. This would better serve the needs of all potential home buyers, including those with good credit, without imposing additional financial burdens on them.
It would seem the Biden Administration is not interested in anything but socialism!