To quote Forrest Gump: Stupid is as stupid does. The Biden Administration now wants homebuyers with good credit to subsidize homebuyers with bad credit. You’d think that Washington politicians would have learned something from the 2008 financial crisis. No. Stupid is as stupid does.
The Biden Administration is making chumps out of every hard-working American that carefully saved up for a down payment on a new home. New pricing rules that Fannie Mae and Freddie Mac plan to implement will force home buyers with good credit that put a lot of money down to subsidize those with bad credit.
Here are the details from the New York Post:
“Loan level price adjustments (LLPAs) are upfront fees based on factors such as a borrower’s credit score and the size of their down payment. The fees are typically converted into percentage points that alter the buyer’s mortgage rate.
Under the revised LLPA pricing structure, a home buyer with a 740 FICO credit score and a 15% to 20% down payment will face a 1% surcharge – an increase of 0.750% compared to the old fee of just 0.250%. When absorbed into a long-term mortgage rate, the increase is the equivalent of slightly less than a quarter percentage point in mortgage rate. On a $400,000 loan with a 6% mortgage rate, that buyer could expect their monthly payment to rise by about $40, according to calculations by Stevens.
Meanwhile, buyers with credit scores of 679 or lower will have their fees slashed, resulting in more favorable mortgage rates. For example, a buyer with a 620 FICO credit score with a down payment of 5% or less gets a 1.75% fee discount – a decrease from the old fee rate of 3.50% for that bracket.”
The result, according to industry pros: pricier monthly mortgage payments for most homebuyers — an ugly surprise for those who worked for years to build their credit, only to face higher costs than they expected as part of a housing affordability push by the US Federal Housing Finance Agency.
“It’s going to be a challenge 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,” one worried Arizona-based mortgage loan originator told The Post.
Subsidizing bad credit is exactly what led to the 2008 financial crisis. Making those that carefully managed their finances pay an extra $500 a year (more if you have a larger mortgage) is unjust. It punishes saving and thrift and rewards irresponsible behavior.
What makes this worse is that Fannie and Freddie have a near monopoly on the mortgage market. Sixty percent of all mortgages are held by these two quasi-government agencies. So chances are when you get a mortgage from your bank or lender, you are going to have to pay a lot more if you have good credit.
The Biden administration is doing to the housing market exactly what they are doing for student loans. Making those that behaved responsibly bail out the irresponsible.
The new rules also demonstrate how deeply politicized the Federal Housing Finance Agency (FHFA) has become. The FHFA’s mission is to regulate Fannie and Freddie. These toxic twins of the mortgage market have been in bankruptcy for the past fifteen years. Ostensibly the reason that they are still being overseen by the FHFA is to restore them to a sound and solvent condition. So how does giving loans to people with bad credit in a housing market with inflated valuations (courtesy of the Federal Reserve) restore these massive government entities to solvency. It doesn’t.
However, if you view Fannie and Freddie as honeypots for Washington politicians it all makes sense.
Feel like your government is taking you for a chump? You are not alone.
GOUSA believes that responsible behavior be rewarded, irresponsible behavior discouraged. Government does exactly the opposite. These new rules should be an affront to every responsible homeowner that carefully built up their credit and put money away to buy the home of their dreams.
So make your voice heard. Join with us. Or kick in a few bucks on our donations page. You will be glad that you did.