Biden to hike payments for good-credit homebuyers to subsidize high-risk mortgages
S E E D E D C O N T E N T
Homebuyers with good credit scores will soon encounter a costly surprise: a new federal rule forcing them to pay higher mortgage rates and fees to subsidize people with riskier credit ratings who are also in the market to buy houses.
The fee changes will go into effect May 1 as part of the Federal Housing Finance Agency ’s push for affordable housing, and they will affect mortgages originating at private banks across the country. The federally backed home mortgage companies Fannie Mae and Freddie Mac will enact the loan-level price adjustments, or LLPAs.
Mortgage industry specialists say homebuyers with credit scores of 680 or higher will pay, for example, about $40 per month more on a home loan of $400,000. Homebuyers who make down payments of 15% to 20% will get socked with the largest fees.
The new fees will apply only to Americans buying houses or refinancing after May 1.
Lenders and real estate agents say the changes will frustrate homebuyers with high credit scores and homeowners seeking to refinance because the rule punishes them for their relatively strong financial positions.
“The changes do not make sense. Penalizing borrowers with larger down payments and credit scores will not go over well,” Ian Wright , a senior loan officer at Bay Equity Home Loans in the San Francisco Bay Area, told The Washington Times in an email message. “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.”
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,” Mr. Wright said.
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.
“In the wake of a 3-percentage-point increase in mortgage rates, now is not the time to raise fees on homebuyers,” Kenny Parcell, president of the National Association of Realtors, told the Federal Housing Finance Agency earlier this year.
Under the new mortgage financing rules, homebuyers with riskier credit ratings and lower down payments will qualify for better mortgage rates and discounted fees.
Federal Housing Finance Agency Director Sandra Thompson, a Biden appointee, said the fee changes will “increase pricing support for purchase borrowers limited by income or by wealth.” The agency calls the overall fee changes “minimal” and said the moves will ensure market stability.
After a storm of criticism, the agency delayed to Aug. 1 an upfront fee for debt-to-income ratios of 40% or more. The ratio is calculated by dividing the homebuyer’s monthly debt payments by gross income. It’s one of the key measures lenders use to determine whether a mortgage applicant qualifies for a loan.
Ms. Thompson said the postponement will help “to ensure a level playing field for all lenders to have sufficient time to deploy the fee.”
The fee changes are intended to subsidize higher-risk borrowers by imposing “an intentional disruption to traditional risk-based pricing,” Mr. Stevens said.
“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 in a post 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.”
He predicted that the Federal Reserve will soon complete its course of tightening its balance sheet and mortgage rates will fall.
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Penalize the credit worthy to reward people who can't pay their mortgages. Nothing like adding on thousands of dollars in fees to punish people for being responsible.
Heard of this this morning. What "level the playing field" BULLSHIT
It sounds similar to Biden's college loan forgiveness boondoggle. Punish everyone who are paying or have paid their loans while giving those who can't (or won't) get a pass.
Another monumental fuck up under the leadership of the Biden Administration.
Hell, wouldn't be surprised to see eventually homes given to poor people and richer people getting stuck with the mortgage!
I have worked hard for my excellent credit rating, and now the Biden Admin. wants to punish me for being successful in paying my bills on time and managing my debt-to-income ratio?
Its quite a system of rewards he's setting up.
Encouraging people to take out loans they don't have the credit history to support worked out so well before. I'm sure there will be no downside.
As though the housing industry needed any more bad news.
The Biden Admin. is truly incompetent.
Every department. Education, Transportation, Homeland Security, etc ... EVERY one of them.
2007-2008 called. They want their mortgage rationale back..................
Democrats have been consistent for 200 years. A debt slave is still a slave. The main thing this accomplishes is it makes it harder for everyone to pay off a mortgage. Democrats don't want people to escape the debt plantation.
I believe that this already exists and has for some time. It seems what they are doing in adding to the % up to 1%.
It has and they are. No one is reporting on this except those looking to poke at Biden and most of those are trying to make it look like a new rule instead of a rule change.
It's a rule change which makes it a new rule does it not?
e it look like a new rule instead of a rule change.
Not at all. What matters is the change and it's burden shifting.
No one is claiming that the LLPA's are new.
But isn't an LLPA assessed against the borrower setting the fees based on credit score, loan-to-value ratio, type of product, etc. This change is something different, isn't it? It's forcing someone with a good credit score to pay some of the fees that a person with a bad credit score would have to pay so that the second person pays less.
Isn't this just another stab at equity? Although it's more like injecting socialism into the home buying equation. The haves will pay the have-nots to allow everybody to own a home...
Wasn't something like this started back during the Clinton administration? If I remember, President Clinton's HUD secretary using the Community Reinvestment Act allowed regulators to give banks higher ratings for home loans made in "credit-deprived" areas. As I remember, this was the seed that started the housing bubble.
Similar, but the Clinton Admin pushed banks to make risky loans but didn't straight out punish good borrowers with higher fees:
If you are getting a little bit ahead, they want you to carry somebody else's load
I wish to hell the folks so damn interested and invested in this "equity" stuff demanded that people work and save money and stop trying to make others pay the way for those who won't or can't.