Homebuyers who worked hard to build up a good credit score and for a down payment to purchase a home are going to be penalized, facing higher mortgages rates to help pay for those with low credit scores.
Starting in May, a new Biden administration rule will raise monthly mortgage payments of buyers with good credit to $60 a month or more, and those who make down payments of 15% to 20% will face the largest fees while riskier borrowers will get better terms because their fees will be reduced. The current structure of the Loan-Level Price Adjustment (LLPA) matrix is being upended by the Federal Housing Finance Agency (FHFA).
For clarification, an additional $60 per month, on a 30-year mortgage equals $21,600 taken from the middle class to pay for people who can’t pay their credit cards or other bills on time and who probably should not commit to buying a house in the first place.
The new FHFA rule inverts the typical use of credit scores in free market economies.
Complaints have been raised that the rule change is unfair and potentially ineffective.
According to Jerry Howard, CEO of the National Association of Home Builders, “I’m not sure we’re not robbing Peter to pay Paul here.”
According to Michael Borodinsky, vice president at Caliber Home Loans, while the plan was designed to help people who face obstacles to homeownership, it comes at the cost of negatively affecting buyers in all demographics who worked hard to save enough money for a larger down payment and maintain a strong credit rating.
Basically, the new rule unfairly penalizes Americans for having good credit and rewards those who accrue debt and don’t pay their bills with cheaper loans.
According to GOP Representative Michael Lawler of New York, “The way to expand access to housing isn’t to reward bad credit – it’s to bring down inflation, reduce property taxes, but energy costs and invest in critical infrastructure.”
Experts in the industry are skeptical and expressed concern that the plan will fail to meet its intended goal.
National Economic Council director Larry Kudlow said government sponsored agencies like Fannie Mae and Freddie Mac have never penalized people who don’t need government programs to own homes, adding the Biden administration’s new rule is a “middle-class tax hike.”