A group of 18 Republican senators wrote a letter Wednesday demanding details about how President Biden’s Federal Housing Finance Agency came to the decision to increase mortgage costs for those with good credit to offset those with poor credit. 

The letter, led by Sens. Roger Marshall, Ky., and Thom Tillis, N.C., said the 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 new rule set to take effect May 1 is part of a plan meant to address the gap in minority homeownership. 

‘Under your leadership, FHFA has pushed forward a number of policy proposals and changes that seek to social-engineer the U.S. housing market in ways that increase riskiness and promote discrimination,’ the senators wrote. 

They went on: ‘FHFA seems intent to go further and enshrine a system that willfully-ignores the realities of creditworthiness in an effort to push Americans into homes they may be ill-suited to afford. The fact that a proposal flaunting credit risk is being openly pushed by FHFA just a decade-and-a-half after the housing-led 2008 financial crisis is staggering.’

Sen. Thom Tillis, N.C.

Sen. Roger Marshall, R-Ky.

The letter, led by Sens. Roger Marshall, Ky., and Thom Tillis, N.C., said the 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 comes one day after Republican Reps. Patrick McHenry and Warren Davidson sent a letter promising action if the Biden administration did not reverse the changes.

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. 

‘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. 

‘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.’ 

Financial Services Chair Patrick McHenry, above, and Housing and Insurance subcommittee Chair Warren Davidson sent a letter on Tuesday demanding the Biden administration reverse changes that increase mortgage costs for homeowners with good credit to offset those who have riskier credit

Financial Services Chair Patrick McHenry, above, and Housing and Insurance subcommittee Chair Warren Davidson sent a letter on Tuesday demanding the Biden administration reverse changes that increase mortgage costs for homeowners with good credit to offset those who have riskier credit

McHenry and Davidson, above, said they would move to repeal the provision through legislation if the Federal Housing Finance Agency did not move to do so itself.

McHenry and Davidson, above, said they would move to repeal the provision through legislation if the Federal Housing Finance Agency did not move to do so itself.

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 good 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. 

The senators in their letter poked holes in the FHFA’s reasoning for the rule: ‘your proposal incorrectly assumes that creditworthiness is solely attained by only the affluent, blatantly disregarding the countless lower-income Americans who have demonstrated exceptional financial responsibility. By conflating credit scores with wealth, you not only engage in a gross oversimplification of a complex issue but also perpetuate a false narrative that unfairly maligns hardworking citizens in the lower-income bracket.’

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. 

 

 

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