It’s a program to re-distribute wealth and an example of government social engineering that conservatives hate. That’s why Congresswoman Lauren Boebert is on the warpath. I am talking about the Biden administration’s effort to make home buyers with good to excellent credit scores subsidize those with poor scores. Under this plan, people with better credit would pay a fee for their home mortgages that would then be used to help those with less than desirable credit scores.
Boebert wrote on Twitter that “The government shouldn’t actively incentivize people to have lower credit scores. It’s like they’re trying to crash the economy on purpose.”
It’s Just Not Fair to People Who Do the Right Thing Financially
Critics say the scheme penalizes borrowers who pay their bills on time and rewards those who accrue debt and do not display principles of effective money management.
For example, people with mortgages worth $400,000 and who have a credit score of 680 and above would pay an average of $40 a month in addition to their monthly payment.
It Affects Numerous Borrowers
The program is administered by the Federal Housing Finance Agency (FHFA) and affects people with home loans through government mortgage entities Fannie Mae and Freddie Mac, which would mean a substantial majority of borrowers. FHFA told Newsweek that the changes to mortgages would be “minimal.”
Give a Hand Up to People With Poor Credit
FHFA believes the program would level the playing field for minority home buyers who often have lower credit scores. White Americans have average credit scores around 721, but the average credit rating for African-Americans is 627 and for Hispanic-Americans it is 667, according to the FinMasters finance blog. Typically, those with lower scores must often agree to a mortgage that has a higher interest rate. This means their monthly payment is more expensive and sometimes unaffordable.
Boebert is likely preparing for a campaign against the FHFA credit score plan. She sits on the House Oversight Committee that is looking for ways to trim government power and scale back programs that are punitive. She could also convince state and local officials to file a lawsuit against the scheme that could tie it up in the courts before it can be fully implemented.
David Stevens, a former federal housing commissioner and former CEO of the Mortgage Bankers Association told the New York Post that he agrees with the critics. “It’s unprecedented. My email is full from mortgage companies and CEOs [telling] me how unbelievably shocked they are by this move.”
Hurts High Credit Individuals Who Take Out 30-year Mortgage Borrowers
Forty dollars a month does not seem like a lot, but it adds up. It would be a total of $480 a year and over a 30-year mortgage this means thousands of dollars more in principal and interest during the life of the loan.
Additionally, those who pay a larger down payment of 15 to 20 percent for a house, townhome, or condo, would be penalized more proportionally compared to those with a lower down payment.
Buyers with a score of 680 or less would have their fees cut to make their monthly payments more affordable.
Conservatives like Boebert criticize this program for not being fair to those who save and pay their bills on time. It dis-incentivizes people to manage their finances in a prudent manner. Meanwhile, people who do not have savings and have trouble paying bills get rewarded for their less than optimal financial behavior.
But many policy makers prefer to make home ownership more affordable for everyone as it is often seen as a way to build wealth by creating equity in your home.
FHFA Director Sandra L. Thompson thinks the plan is “another step to ensure that [Fannie Mae and Freddie Mac] advance their mission of facilitating equitable and sustainable access to homeownership.”
Boebert and other detractors make a solid case against this wealth redistribution program. Government interference and programs to “help” low income home buyers led to people buying houses who could not otherwise afford them during the real estate crisis of 2008 and 2009. Critics reckon there will be unintended consequences for this program too.
Author Expertise and Experience
Serving as 19FortyFive’s Defense and National Security Editor, Dr. Brent M. Eastwood is the author of Humans, Machines, and Data: Future Trends in Warfare. He is an Emerging Threats expert and former U.S. Army Infantry officer. You can follow him on Twitter @BMEastwood. He holds a Ph.D. in Political Science and Foreign Policy/ International Relations.