Monitoring and covering politics so closely has left me largely desensitized to political news. Whether good or bad, whether I agree with what’s happening or not, the emotional impact is usually limited. But occasionally, something happens that cuts all the way through to hit a raw nerve. Today, for example, something has me ticked. What happened? A Biden executive order is taking effect that will cause the Federal Housing Finance Agency to adjust their single-family pricing framework.
The FHFA adjustments “will change the fees known as loan-level price adjustments (LLPAs) and affect all future homebuyers mortgage rates – right in the middle of the spring housing market and in the face of what many economists predict is a coming recession,” The Hill explained.
What does that look like exactly?
“With the new fees, a homebuyer with a credit score of 680 or above will now have to pay a 1 percent LLPA fee. Those who make a 15 percent to 20 percent down payment will see the biggest increase – about $40 or more on their monthly mortgage payments. In contrast, people with credit scores below 680 – riskier borrowers who are more likely to default on mortgage payments – would instead receive a 1.75 percent discounted LLPA fee.”
Read another way: homebuyers with good credit will be subsidizing homebuyers with bad credit.
Yes, it’s true. No, I can’t believe it either.
It’s Not Fair
What the Biden administration has done here is penalize the people who have worked hard, the people who have saved their money, the people who have lived within their means, and the people who have made good on their debts. Biden is penalizing people with good credit who were following the rules.
And clearly, Biden’s move isn’t about income redistribution, or about racial equity (not that the move would be okay if it were about those things). Rich people can and do have bad credit; poor people can and do have good credit.
So, starting today, middle-class Americans making modest money, who always lived within their means, and who squirreled away a few dollars at a time to be able to one day afford a twenty percent down payment on a home, will subsidize people who overextend themselves financially. It’s bullshit. And it’s dangerous.
The Real Rationale
Biden can appeal to income redistribution and racial equity all he wants. But I’m gonna take a guess here that Biden, the guy who helped craft Delaware into a corporate haven, was amenable to lobbyists who wanted their clients to be able to lend credit more freely, to give out more loans. Sound familiar?
“The cause of the 2008 housing market crash was a flood of borrowers with low credits attaining and then defaulting on subprime mortgages,” The Hill reported. “This new policy once again encourages risky mortgages for buyers with bad credit.”
Former Federal Housing Administration Commissioner David Stevens, an Obama appointee, is upset with the news, too. “This is an unprecedented move,” Stevens said. “This has really convoluted the entire discipline and credit risk pricing structure that Fannie Mae and Freddie Mac have followed since their inception.”
Harrison Kass is the Senior Editor at 19FortyFive. An attorney, pilot, guitarist, and minor pro hockey player, Harrison joined the US Air Force as a Pilot Trainee but was medically discharged. Harrison holds a BA from Lake Forest College, a JD from the University of Oregon, and an MA from New York University. Harrison listens to Dokken.