Republicans threaten to REPEAL new mortgage rule that would ‘tax’ borrowers with good credit

• ‘It’s a socialist redistribution of wealth,’ said Rep. Warren Davidson in a statement. ‘If the FHFA doesn’t reverse this rule, Congress must’
• A May 1 rule change is meant to offset low-credit borrowers who more for their mortgages by asking good credit homeowners to fork over more cash 
• A borrower with good credit could pay around $40 more per month on a $400,000 mortgage 

Republican Reps. Patrick McHenry and Warren Davidson sent a letter on Tuesday promising action if the Biden administration did not reverse changes that increase mortgage costs for homeowners with good credit to offset those who have riskier credit.

Financial Services Chair McHenry, R-N.C., and Housing and Insurance subcommittee chair Davidson, R-Ohio, said they would move to repeal the new provision through legislation if the Federal Housing Finance Agency did not move to do so itself. 

‘It’s a socialist redistribution of wealth,’ said Davidson in a statement. ‘If the FHFA doesn’t reverse this rule, Congress must.’

‘These changes violate the fundamental principle of risk-based pricing, namely that lower-risk borrowers should pay lower prices for access to credit than higher-risk borrowers,’ the two chairs wrote in their letter, addressed to FHFA director Sandra Thompson and obtained by DailyMail.com. 

‘This new tax also fails the basic test of fairness by punishing borrowers who act responsibly, and will in turn incentivize homebuyers to reduce their down payments and carry additional debt.’ 

When an individual takes out a mortgage the rate they pay is determined by both interest rates set by the Federal Reserve and the loan-level price adjustment. The loan-level price adjustment functions like car insurance going up after an accident – the riskier the borrower, i.e. those with bad credit, the more they pay. 

A May 1 rule change is meant to offset low-credit borrowers paying more for their mortgages. They’ll still pay more than those with bad credit, but less than they did before. 

In order to make up for the lost revenue, borrowers with strong credit – 680 and above – could pay around $40 more per month on a $400,000 mortgage. Homebuyers who make down payments of 15 to 20 percent will be hit with the largest fee changes. 

New fees will only affect those who buy homes after May 1.  

The Federal Housing Finance Agency (FHFA) regulates federal mortgage guarantor giants Fannie Mae and Freddie Mac— meaning most people who have mortgages will be affected. 

The housing market has already been hit hard as the Federal Reserve hikes rates to try to stave off inflation – mortgage rates have ticked up above 6 percent.  

FHFA director Sandra Thompson says the rules change serves to  ‘increase pricing support for purchase borrowers limited by income or by wealth.’ She said the overall fee changes would be ‘minimal’ and would ensure market stability. 

The Federal Housing Finance Agency on April 19 proposed a series of rules changes focused on ‘Fair Lending, Fair Housing, and Equitable Housing Finance Plans.’ That included adding requirements for lenders to address the gap in minority homeownership.

In the fourth quarter of 2022 the white homeownership rate was 74.5 percent while black homeownership rate was 44.9 percent.  

Its stated goal for boosting homeownership among minorities was to generate wealth in those communities. 

Lenders rely on credit attributes to determine mortgage accessibility and rates. Black home loan applications are currently denied at a higher rate than every other ethnic group in the country. 

Neighborhoods with higher black populations also see lower home prices, FHFA notes.