New Hampshire Gov. Chris Sununu joined 18 of his fellow GOP governors Wednesday opposing a Biden administration policy raising borrowing costs on would-be homeowners with good credit while cutting the fees paid by people with lower credit scores.
“We write to you in regard to the mandated May 1, 2023, changes to the loan level pricing adjustment (“LLPA”) structure employed by Fannie Mae and Freddie Mac and ask that you reverse course on behalf of hardworking Americans across the country,” the Republicans said in a letter to President Joe Biden and his Federal Housing Finance Agency Director Sandra Thompson.
“In short, the new LLPA framework will inevitably increase mortgage costs for lower-risk individuals and handicap those borrowers with larger down payments. Further, the changes provide no incentive to borrowers to maintain good credit and will confuse borrowers at all credit levels.”
“Your actions are threatening the American housing system,” they added.
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.
The top finance officials from 27 states have already sent a letter to the Biden administration opposing the new rule.
“This foolish proposal would force homeowners with good credit to pay the mortgage bill for borrowers with bad credit,” Sununu said. “I can’t imagine why the Biden Administration thinks punishing responsible homeowners with increased mortgage costs would ever make for good policy.”
In an apparent response to the outcry from the fee changes, the FHA announced a “public comment” period beginning on May 15. According to Kristy Merrill of the New Hampshire Banking Association, that’s good news.
“We’re pleased that the FHFA has recently issued a request for information seeking feedback from the public and welcome the request for additional transparency on the process for developing the single-family pricing framework. This signals the opening of the door for additional changes,” Merrill said.
But it’s Congress that ultimately regulates the FHA. All four New Hampshire federal delegation members declined to respond when asked if they support the new, more progressive fee structure. They have also declined to support legislation to reverse the FHA’s new rules.
Supporters of the new fees argue that the FHA needs more revenue to protect Fannie and Freddie from another 2008-style meltdown. And while it’s true that fees are going up for borrowers with good credit, those with poor credit will still pay more.
Opponents of the policy, including the 18 governors, say it will undermine individual responsibility and promote “uncertainty” in the economy.
“By upending the existing financing model that relies on individual financial responsibility, you are increasing uncertainty in the housing market and our nation’s economy. As noted by Senate Republicans on April 26, the LLPA mandates will ‘distort the cost of lending in U.S. housing markets, making the entire system less efficient and costlier for all Americans.’
Several notable names were missing from the signature list on the letter, including 2024 presidential hopeful Gov. Ron DeSantis (R-Fla.), conservative Gov. Henry McMaster (R-S.C.), and New Englander Phil Scott (R-Vt.), a liberal Republican who often breaks ranks with his party.
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.”
Elmslie said that raising the share good credit borrowers pay and lowering the cost for lower credit borrowers is a subsidy. 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.”