April 17, 2023 - 9:00 pm
The Biden administration wants homebuyers who have good credit to cover the risks of lending to homebuyers who don’t. Congressional Republicans should stand united against this latest White House effort to erode the value of personal responsibility.
The New York Post reported this week that Fannie Mae and Freddie Mac are prepared to overhaul the fees built into mortgages issued at private banks. The charges — known as low-level price adjustments — are based on a handful of factors and often absorbed into a buyer’s mortgage rate.
Under the Biden plan, those with better credit scores would face additional surcharges while those with substandard credit scores would see fees cut nearly in half.
“When absorbed into a long-term mortgage rate, the increase is the equivalent of slightly less than a quarter percentage point in mortgage rate,” the Post reported in reference to buyers with higher credit ratings. “On a $400,000 loan with a 6 percent mortgage rate, that buyer could expect their monthly payment to rise by about $40.”
That’s nearly $14,400 over the life of a traditional 30-year mortgage.
The point of all this is to promote the progressive version of “equity” — of course. Poorer people, particularly in minority communities, often have lower credit scores, making it more expensive and difficult to get a housing loan. Transferring the costs of riskier loans to more credit-worthy buyers is supposed to level the playing field.
Yet precisely like the Biden gambit on student loan forgiveness, it would punish people who sacrificed, played by the rules and have a history of paying their bills on time, further chipping away at the importance of individual agency. It also makes it easier for lenders to increase portfolio risk, increasing the chances of a housing meltdown. Did politicians learn nothing from 2008?
“It’s going to be a challenge,” one loan originator told the Post, “trying to explain to somebody that says, ‘I worked my whole life for high credit and I’ve put a lot of money down and you’re telling me that’s a negative now?’ That’s a hard conversation to have.”
David Stevens, who served as Federal Housing Administration commissioner during the Obama administration, told the Post that the administration’s proposal is “unprecedented. My email is full from mortgage companies and CEOs (telling) me how unbelievably shocked they are by this move.”
In addition, the fee increases for credit-worthy buyers come at a time when the housing industry is struggling to adjust to higher interest rates triggered by the Fed’s efforts to fight inflation.
It’s telling that the White House has moved forward on this with very little attention or fanfare, essentially trying to sneak it past homebuyers. Republicans should be vocal in their opposition.