Biden To Punish Good-Credit Homebuyers To Subsidize High-Risk Mortgages
A new rule from the Biden administration will force homebuyers with good credit scores to pay higher mortgage rates in order to subsidize loans to those with riskier borrowing profiles, the Washington Times reports.
The fee, which will apply to those buying or refinancing houses after May 1, will affect homebuyers with credit scores of 680 or higher, will amount to roughly $40 per month on a home loan of $400,000, or nearly $500 per year. Homebuyers who make down payments of 15% - 20% will be hit with the largest fees.
According to those in the industry, the changes will frustrate homebuyers with high credit scores, as well as those looking to refinance, as they're being punished for having strong financial positions.
"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 the San Francisco Bay Area, in a statement to the Washington Times via email. "It overcomplicates things for consumers during a process that can already feel overwhelming with the amount of paperwork, jargon, etc. Confusing the borrower is never a good thing."
Wright also says that 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," he continued.
The new fees “will create extreme confusion as we enter the traditional spring home purchase season,” said David Stevens, a former head of the Mortgage Bankers Association who served as commissioner of the Federal Housing Administration during the Obama administration.
“This confusing approach won’t work and more importantly couldn’t come at a worse time for an industry struggling to get back on its feet after these past 12 months,” Mr. Stevens wrote in a recent social media post. “To do this at the onset of the spring market is almost offensive to the market, consumers, and lenders.”
The housing market has been hit hard by a series of Federal Reserve interest rate hikes that have driven mortgage rates above 6%, roughly double the level from early 2022. The Fed has raised rates rapidly to bring down inflation, which hit a four-decade high of 9.1% last summer. -Washington Times
Under the new Biden rules, those with lower credit scores and smaller down payments will qualify for better mortgage rates and discounted fees thanks to the surcharge on those with good scores.
"In the wake of a 3-percentage-point increase in mortgage rates, now is not the time to raise fees on homebuyers," said NAR president, Kenny Parcell, during testimony to the Federal Housing Finance Agency earlier this year.
Biden appointed FHA Director Santra Thompson, meanwhile, said that the fee changes will "increase pricing support for purchase borrowers limited by income or by wealth," and the agency considers the fee changes "minimal."
In short, the fee changes will subsidize higher-risk borrowers by imposing "an intentional disruption to traditional risk-based pricing," according to Stevens.
"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," he wrote on LinkedIn. "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."