Sunday, February 25, 2024

Feds Plan On Hiking Mortgage Fees On Good Credit Buyers To Subsidize Bad-Credit Buyers

One of the causes of the housing crisis during the Great Recession was the handing out of mortgages to subprime borrowers who had no real ability to pay back the mortgage. The end result led to a glut of foreclosures which crashed the housing market and made the Great Recession even worse.

It appears that the Biden administration has learned nothing. In their misguided pursuit of “equity” the Biden administration is going to require borrowers with good credit to subsidize those with bad credit.

The U.S. Federal Housing Finance Agency is going to raise the mortgage fees charged to those with good credit. The new fees will go into effect on May 1 when the federally backed mortgage companies Fannie Mae and Freddie Mac establish their new loan-level price adjustments nationwide. Those fees will be used to subsidize borrowers with bad credit.

From The Blaze:

The Federal Deposit Insurance Corporation defines loan-level price adjustments as “risk-based pricing adjustments that vary based on credit score, loan-to-value ratio, type of product, and various other factors, charged at the time of origination.”

The Washington Times reported, “Mortgage industry specialists say homebuyers with credit scores of 680 or higher will pay, for example, about $40 per month more on a home loan of $400,000. Homebuyers who make down payments of 15% to 20% will get socked with the largest fees.”

According to the New York Post, “Meanwhile, buyers with credit scores of 679 or lower will have their fees slashed, resulting in more favorable mortgage rates. For example, a buyer with a 620 FICO credit score with a down payment of 5% or less gets a 1.75% fee discount – a decrease from the old fee rate of 3.50% for that bracket.”

Ian Wright – a senior loan officer at Bay Equity Home Loans in the San Francisco area – told the Washington Times, “The changes do not make sense. Penalizing borrowers with larger down payments and credit scores will not go over well. It overcomplicates things for consumers during a process that can already feel overwhelming with the amount of paperwork, jargon, etc. Confusing the borrower is never a good thing.”

This is utter insanity. Mortgage borrowers who do the right thing, ie. have good credit and put down a sizable down payment in order to build equity, are going to be penalized with higher fees.

To make this even worse, these people are going to be forced to subsidize those with bad credit and who don’t put as much money down when buying a house. This is an utterly insane attempt to create more “equity.”

I’m all for things that help encourage home ownership. But to penalize people who do the right thing in life in pursuit of equity is simply the wrong thing to do. Banks are not charities they are in the business of making money. Lending to people whose credit is bad means the bank takes on more risk than they would be lending to someone with a large down payment and good credit.

The feds defend this policy by claiming this policy would, “increase pricing support for purchase borrowers limited by income or by wealth.” according to The Blaze. They also point out the fees are “minimal” and would provide market stability.

Increasing the risk of foreclosure is a weird way to provide market stability. All this insanity would do is increase the risk of another housing crash.

If there is another housing crash, it is going to be entirely on the Biden administration because they appear to have not learned from history.