Biden Raises Costs for Homebuyers With Good Credit to Help Risky Borrowers; Newsweek 17 hrs ago
Homebuyers with good credit scores will soon be facing higher mortgage fees as the Biden administration seeks to close the racial homeownership gap and get more first-time and low-income buyers through the door.
Starting in May, a new federal rule will upend the current structure of the Loan-Level Price Adjustment (LLPA) matrix. Homebuyers with a good credit score could see their monthly mortgage payment rise by over $60 a month, while riskier borrowers will get more favorable mortgage terms because their fees were reduced. It's a move the Federal Housing Finance Agency (FHFA) hopes will address housing affordability challenges in the U.S., but it's come under scrutiny for being unfair and potentially ineffective.
"In the short term, this may increase homeownership among the targeted group, but I'm afraid it could decrease homeownership among the middle class," Jerry Howard, CEO of the National Association of Home Builders, told
Newsweek. "I'm not sure that we're not robbing Peter to pay Paul here."
Only about 25 percent of homebuyers with Federal Housing Administration loans are people of color, according to the White House. Black and Hispanic people, on average, have fewer savings to use as a down payment on a home and tend to have lower credit scores, according to David Stevens, former CEO of the Mortgage Bankers Association (MBA) and a former FHA commissioner during the Obama administration.
He told
Newsweek that this can be attributed to factors like distrust in the banking system or being a first-generation American and that low credit scores can be a significant barrier to homeownership.
But in order for the FHFA to close the gap by bringing down LLPAs for those borrowers, the agency has to compensate for the reduction in borrowing fees by raising the LLPAs of borrowers with higher credit scores, who tend to be white. The average credit score in white communities was 727 in 2021, compared with 667 in Hispanic communities and 627 in Black communities, according to data analyzed by FinMasters, a personal finance blog.
The effort to get more low-income Americans and Americans of color into homeownership is essentially being subsidized by borrowers who have better credit scores and who can contribute more to their down payment, Michael Borodinsky, a vice president at Caliber Home Loans, told
Newsweek.
Borodinsky said while the plan was designed to help people who have historically faced obstacles to homeownership, it comes at the cost of negatively affecting buyers who worked hard to save enough money for a larger down payment and maintain a strong credit rating, especially since those buyers can "be of all demographics."
"This new rule unfairly penalizes Americans for having good credit and rewards those who accrue debt and don't pay their bills with cheaper loans," GOP Representative Michael Lawler of New York told
Newsweek. "The way to expand access to housing isn't to reward bad credit. It's to bring down inflation, reduce property taxes, cut energy costs and invest in critical infrastructure."
Although the new rule, which takes effect May 1, is designed to assist low-income and minority borrowers by encouraging homeownership, industry experts have expressed concern that the plan fails to meet that goal.
Stevens said that while the generational limitations on homeownership among racial groups in the U.S. need to be addressed, FHFA Director Sandra Thompson's actions weren't enough to lower borrowing costs to the point it will "make a difference."
"We just went through to this completely convoluted discipline around risk-based pricing in the hopes of accomplishing something that isn't going to be accomplished," he said.
However, in a statement shared with
Newsweek, the FHFA defended the changes. It called the recalibration of its pricing framework "minimal" and stressed that the agency's goal of making sure that the government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac "fulfill their role in any market condition."
But former National Economic Council Director
Larry Kudlow said those GSEs have never "penalized" people who don't need government programs to help them own homes, calling the Biden administration's new rule a "middle-class tax hike."
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Interesting, so we that have good credit get penalized for working for that good credit rating all to help those that have poor credit.
Hopefully the GOVT will kill this thing before May 1st.
