Granite Staters with good credit will pay higher mortgage fees while borrowers with bad credit will pay less under a new Biden administration rule — and New Hampshire’s Democratic federal delegation is just fine with that.
The new policy, which took effect May 1, is designed to promote social justice by reducing lending fees on borrowers with lower credit scores. Meanwhile, home buyers with a credit score over 680 will pay about $500 more per year on a $400,000 loan. That adds up to more than $14,000 throughout a 30-year mortgage.
And borrowers who put aside enough in savings for a 20 percent down payment will pay the highest fees under the new Federal Housing Agency (FHFA) policy.
Under the new LLPA (Loan-Level Price Adjustment) fee schedule, the borrower with modest credit — 640 to 659 — who puts down just 5 percent would enjoy a fee drop from 2.75 percent to 1.5 percent. But a borrower with good credit (740-759) with a 20 percent down payment would see their fee double from 0.5 percent to 1 percent.
Republicans, along with many responsible borrowers, have lashed out against the policy, described by critics as income distribution applied to home ownership. The top finance officials from 27 states sent a letter to the Biden administration opposing the new rule.
“For decades, Americans have been told that they will be rewarded for saving their money and building a good credit score,” they wrote. “This policy turns that time-tested principle upside down. And how will these new junk fees be used? To subsidize higher-risk borrowers by handing out better mortgage rates to people with lower credit ratings who have saved less for a down payment.”
Even former Obama FHA Commissioner David Stevens thinks it’s a mistake. “We can do better programs to help more minorities get into homeownership. This is not the way to do it,” he told Fox Business.
But the Biden rules apparently have the approval of New Hampshire’s all-Democrat federal delegation, all of whom declined to criticize the policy. Sens. Maggie Hassan and Jeanne Shaheen and Reps. Annie Kuster and Chris Pappas were all no comment to repeated questions over the past week about the fee hikes on responsible borrowers.
They also refused to say what their message is “to Granite Staters who’ve made responsible decisions about debt and will be forced to subsidize those who haven’t?”
And they’ve all declined to support legislation to cancel the rule changes, which has the backing of moderate Republicans like New York’s Rep. Patrick Lawler and Rep. Nancy Mace (R-S.C.)
“Whether it’s student loan forgiveness or their mortgage rule, through the power of the pen, Biden and his executive agencies are attempting to bypass Congress and fundamentally change how our country operates,” said lead sponsor Rep. Stephanie Bice (R-Okla.) “We should not punish individuals who have made sound financial decisions or have the government incentivize lowering credit scores.”
Bruce Elmslie, chair of the UNH Economics Department, told NHJournal one reason the FHFA might be making the change is to achieve the mission of its charter, which includes “promoting access to mortgage credit throughout the nation.”
“The incentive issue is part of this program,” Elmslie said. “So you could see this as part of an effort to comply with the charter.
“But it also creates perverse incentives when you’re incentivizing those actors who have lower credit. And increasing the fee on a higher credit score, that’s a disincentive to people from taking the most credit-worthy actions.”
Defenders of the new Biden policy shrug off the complaints, arguing that the fee changes are modest and stretched out over time. And Biden’s FHFA Director Sandra L. Thompson insisted that no subsidy is involved. Instead, it is just an update on pricing for the revenue the agency uses “to compensate [Freddie Mac and Fannie Mae] for guaranteeing borrowers’ mortgage payments, which in turn attracts investors across the globe to provide liquidity for the U.S. mortgage market and, ultimately, reduces interest rates for homeowners.”
But raising the share good credit borrowers pay and lowering the cost for lower credit borrowers is a subsidy, Elmslie insisted. And while the numbers may appear small to some, they matter regarding mortgages.
“We’re talking about a large purchase, perhaps the largest purchase many people will make. And buyers are very sensitive to the underlying structure of these purchases.”
NOTE: An earlier version incorrectly identified Rep. Brian Fitzpatrick (R-Pa.) as a co-sponsor of the GOP legislation to reverse the Biden policy. We regret the error.