You may have missed the memo, but the Biden administration’s Federal Housing Finance Agency (FHFA) created a new rule, which took effect Monday. It changes mortgage fees based on a borrower’s credit score.
Here’s why you should care: If you are an American who has worked hard for good credit, you are likely to pay more on your home loan now than you would have before this revision.
By charging borrowers with good credit scores higher fees, those with non-stellar scores will pay less steep fees than they did previously. Think of it as mortgage socialism.
“It is absolutely intended to create a greater cross-subsidy,” Mark Calabria, a senior adviser at the Cato Institute and former FHFA director, told me. “So the kind of outrage you may be hearing in conservative circles about how this is penalizing people who have good credit to subsidize people with bad credit is 100% true.”
The goal is to encourage more home ownership. But what’s the message that President Joe Biden and Democrats are sending here? It’s definitely not one of rewarding smart decisions.
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‘Equitable’ for whom?
Biden tried to do something similar with his $400 billion-plus student loan “forgiveness” plan by creating a situation that unfairly penalizes those who have paid the loans they took out – and the ones who never got loans in the first place – by making them pay for this leniency.
This housing rule change will have broad impact, as it affects most loans guaranteed by Fannie Mae or Freddie Mac, which are in turn backed by taxpayers. These loans comprise about 60% of the mortgage market.
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The new fees are tied to a bigger plan from the housing agency and Biden administration to offer “equitable” access to homeownership.
That may sound like a worthy goal, yet it’s worth questioning who must pay for it. Progressives like to link low-income borrowers with those who have bad credit. That’s not always the case, though. Plenty of wealthier borrowers don’t have good credit, just as there are low-income families who have maintained high credit scores.
It’s also risky to incentivize those who can’t afford a home loan to take one. Just look at what happened in 2008 with the mortgage meltdown.
It is important to note that those with lower credit scores will still pay more overall than those with better credit (so don’t go out and try to ruin your credit) – they’ll just be paying less than they were before.
Republicans say ‘no thanks’
The fee changes have garnered heated criticism from conservatives.
Eighteen senators, including Florida Sen. Marco Rubio, sent a letter last month to FHFA Director Sandra Thompson, a Biden nominee.
“This shortsighted and counterproductive policy demonstrates a profound misunderstanding of the necessity of accurately tailoring housing finance products to credit risk and establishes a perverse incentive that punishes hardworking Americans for their fiscal prudence,” the letter said.
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In addition, state treasurers and finance officials from 27 states sent a letter on Monday urging the Biden administration to backtrack from the policy.
“It is already clear that this new policy will be a disaster,” they wrote. “It amounts to a middle-class tax hike that will unfairly cost American families millions upon millions of dollars.”
Even a former federal housing official under President Barack Obama slammed the Biden rule, saying it’s “unprecedented” and “not the way” to encourage more home ownership.
The cost of the fee change won’t be huge for most borrowers, but one estimate pegs the extra costs for higher-credit borrowers at $3,200. That’s not an insignificant charge, especially one caused by bureaucratic meddling.
Besides, it’s the principle that counts. And Biden’s wrong on this one.
Ingrid Jacques is a columnist at USA TODAY. Contact her at [email protected] or on Twitter: @Ingrid_Jacques
