The Biden administration’s idea to increase mortgage fees for people with good credit scores in order to help those with poorer credit scores can count on a surprising level of support among Americans, as shown by a recent Newsweek poll.
A sample of 1,500 eligible American voters was surveyed on the topic of the Biden administration’s proposal on May 17 by Redfield and Wilton Strategies exclusively for Newsweek. It found that 47 percent of respondents supported the proposal to raise mortgage fees for those with good credit scores to help lower fees for those with poorer credit scores. On the other hand, 26 percent of respondents opposed the move.
Some 22 percent of Americans didn’t support nor oppose the plan, while 5 percent said they didn’t know how they felt about it.
The changes were suggested as part of the Biden administration’s plans to provide equitable access to homeownership to all. Following two years of skyrocketing prices, booming demand, and low stock which made homeownership an unattainable dream for many, the housing market has been undergoing a modest correction since last summer.
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Home prices have been falling for three consecutive months as of April, though, according to data from the National Association of Realtors, they are still on average $100,000 higher than they were before the beginning of the pandemic.
Higher mortgage rates, due to the Federal Reserve’s efforts to slow down inflation, have also discouraged many from buying a home in recent months.
Under the new rule proposed by the Biden administration, which took effect on May 1, first-time homebuyers with high credit scores would pay more for their mortgage, covering lowering fees for aspiring homebuyers with poorer credit scores. While those with top credit scores still pay less than those with lower credit scores overall, the penalty for people with lower credit scores has been decreased.
The fees apply to any loan that’s guaranteed by either Fannie Mae or Freddie Mac, whose combined share of the mortgage market is nearly 60 percent of all new mortgages during the pandemic, according to the Urban Institute.
“The Biden proposal to reduce risk-based pricing in the Fannie [Mae] and Freddie [Mac] segment of the mortgage market is likely to have little impact on overall market activity or homeownership,” Mark Calabria, a senior adviser at Washington-based libertarian think tank the Cato Institute and former FHFA director, told Newsweek.
“For higher-risk borrowers, most will simply be drawn away from FHFA, representing little, if any, new lending. While the higher cost for better quality borrowers is unfortunate, it is not large enough to noticeably reduce loan demand. The overall concerns regarding these changes are less about aggregate impact and more about underlying principles,” he said. “Ultimately we need to get the government out of the job of mortgage pricing.”
The move has received widespread criticism, especially among conservative circles accusing the Biden administration of punishing those with higher credit scores.
In late April, West Virginia Senator Shelley Moore Capito signed a letter with other Republican senators opposing the rule, writing: “Your proposal incorrectly assumes that creditworthiness is solely attained by only the affluent, blatantly disregarding the countless lower-income Americans who have demonstrated exceptional financial responsibility.”
“By conflating credit scores with wealth, you not only engage in a gross oversimplification of a complex issue but also perpetuate a false narrative that unfairly maligns hardworking citizens in the lower-income bracket,” the letter said, in part.
Twenty-seven State Financial Officers also signed a letter to the Biden administration and the Federal Housing Finance Agency (FHFA) expressing their concerns about the impact of the new rule on home buying.
“Incredibly, those who make down payments of 20 percent or more on their homes will pay the highest fees—one of the most backward incentives imaginable,” the letter reads. “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.”
The National Association of Home Builders (NAHB) published a statement saying that, while “lowering fees for low- to moderate-income borrowers and first-time home owners is a positive step to making homeownership more affordable and attainable for many potential creditworthy home buyers who have been locked out of the market,” the group “opposes the changes in the new pricing framework that raise fees on borrowers with higher credit quality.”
The FHFA released its own statement to respond to the avalanche of concerns received by the industry and conservative politicians.
“The updated pricing framework will further the safety and soundness of the Enterprises, which will help them better achieve their mission,” it wrote. “They will provide reliable liquidity to the market while also providing more targeted support for creditworthy borrowers limited by income or wealth. And they will do so with a pricing framework that is more accurately aligned to the expected financial performance and risks of the loans they back.”
The most controversial part of the new rule, later revisited, was the addition of the LLPA—the loan-level pricing adjustment—tied to a borrower’s debt-to-income (DTI) ratio, which would have charged a fee for borrowers with a DTI at 40 percent or higher. The FHFA has delayed the implementation of the DTI-based LLPAs until August after an uproar from the industry.