For those Americans who worked hard and made sacrifices along the way to establish a good credit record, the Biden administration has a special prize: a big kick in the teeth.
Under new rules from the Biden administration’s Federal Housing Finance Agency (FHFA), home buyers with higher credit scores will pay higher fees on their mortgages. Those with lower credit ratings and who put less money down will get more favorable mortgage rates than those for which they would otherwise qualify.
The Biden rule impacts roughly half of home loans across the country and has the net impact of making it significantly more expensive for those who played by the rules to buy a house. For example, a borrower with a “good” score of 680 or higher could expect to pay an additional $40 month after month for the life of a $400,000 mortgage, according to one estimate.
As of this past May 1, those who make down payments of 20 percent or more on their homes may wind up paying the highest fees. This policy stands on its head the basic principle that if we scrimp and save and build a good credit record, we will be ultimately rewarded.
The outrageousness of the Biden FHFA rule is compounded by its redistributive nature. The new junk fees are being used to subsidize higher-risk borrowers. That is to say, comparatively better mortgage rates are being handed out to people with relatively lower credit ratings and who have saved less for a down payment. Moreover, this represents a substantive FHFA policy change in the lead up to a presidential election year that inappropriately circumvents the federal rule-making process. Not one elected official had the opportunity to vote on the policy, and there is zero accountability to the American people.
Home ownership has become central to what we think of as the American Dream. It’s important, therefore, to recognize that there is a gap in access to credit and that low credit scores are a significant barrier to buying a home. Helping Americans to overcome that gap and accomplish that dream should be encouraged, such as through federal programs that exist to address affordable housing assistance. Unfortunately, the president’s new policy does nothing to address the shortage of housing inventory. And abusing federal power to penalize hardworking, middle-class American families by confiscating their money and using it as a handout is always the wrong way to approach the problem.
The right approach would be to implement policies which will lower interest rates overall, such as bringing runaway inflation under control and eliminating policies that create high energy costs – factors which are placing American families under economic stress and are challenging their ability to maintain credit worthiness. Increased financial literacy efforts must also be part of the solution.
It is crystal clear to me, as a former senior mortgage banker, that the administration’s new mortgage policy will be a disaster. American families will have to pay out millions upon millions of dollars more in what amounts to an unfair middle-class tax hike. And as a consequence – at a time when high interest rates have already significantly depressed home sales – the entire real estate market could be expected to go sour. And the cascading impact on the fragile American economy would benefit no one.
As the policy took effect, 34 state financial officers representing 27 different states sent a letter to President Biden calling on him to end the new FHFA policy. State financial officers can be counted on to continue raising important questions and to help safeguard the middle class from this sort of misguided big government interference.
Derek Kreifels is the co-founder and CEO of the State Financial Officers Foundation.