Multiple state treasurers urged the Biden administration on Monday to take action to end a new policy that will effectively penalize financially stable homebuyers to subsidize those with higher risk.
Americans purchasing a new home or refinancing their mortgage can expect to pay higher mortgage rates and monthly fees if they have robust credit scores, while those with lower credit scores and smaller down payments will receive better rates. Buyers with credit scores above 680, for instance, would pay an additional $40 each month on a home loan of $400,000, while homebuyers who make down payments between 15% and 20% will receive the largest fees.
In a letter to President Joe Biden and Federal Housing Finance Agency Director Sandra Thompson, the state financial officers said that the move effectively renders home purchases “significantly more expensive” for families with good credit.
“The policy will take money away from the people who played by the rules and did things right, including millions of hardworking, middle-class Americans who built a good credit score and saved enough to make a strong down payment,” the officials wrote. “For decades, Americans have been told that they will be rewarded for saving their money and building a good credit score. This policy turns that time-tested principle upside down. And how will these new junk fees be used? To subsidize higher-risk borrowers by handing out better mortgage rates to people with lower credit ratings who have saved less for a down payment.”
The 34 state financial officers who signed the letter hailed from 27 states, including Pennsylvania, Florida, Texas, North Carolina, and Ohio. The implementation of the new fee structure, part of which was delayed until August following widespread criticism, is consistent with White House policies addressing racial income and wealth inequality: Biden issued an executive order mandating that his administration operate under a “whole-of-government approach to racial equity and support for underserved communities” and calling on federal agencies to “embed” the philosophy into all aspects of their decision-making.
“Federal programs exist to address affordable housing assistance and the new policy does nothing to address the shortage of housing inventory,” the letter continued. “But the right way to solve that problem is not to use the power of the federal government to penalize hardworking, middle-class American families by confiscating their money and using it as a handout. The right way is to implement policies which will reduce inflation, cut energy costs and bring lower interest rates. Doing so will enable more families to save and improve their credit scores.”
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Mortgage Bankers Association CEO Robert Broeksmit previously said in a letter to the Federal Housing Finance Agency that the policy would raise costs for typical homebuyers despite the “current stressed housing market conditions already making affordability a challenge,” prompting him to call for the loan level pricing adjustments based on income to be removed. Former Federal Housing Commissioner David Stevens, who served under the Obama administration, said in a recent interview that the Biden administration policy is “unprecedented” and will convolute the “entire discipline and credit risk pricing structure” used by government-backed mortgage companies Fannie Mae and Freddie Mac.