The Biden administration plans to raise the monthly mortgage fees of homebuyers with good credit scores to encourage homeownership for low-income and first-time buyers and close the racial homeownership gap. The Federal Housing Finance Agency (FHFA) aims to address US housing affordability challenges by amending the current structure of the Loan-Level Price Adjustment (LLPA) matrix from May. The change will reduce fees for riskier borrowers, thereby penalizing borrowers with higher credit scores. The average credit score in white communities was 727 in 2021, compared with 667 in Hispanic communities and 627 in Black communities, according to data analyzed by FinMasters, a personal finance blog.
We’ll be referencing this article by Newsweek.
While the rule is designed to help people who have historically faced obstacles to homeownership, industry experts have expressed concern that the plan fails to meet that goal. Critics argue that the new rule will hurt buyers who worked hard to save enough money for a larger down payment and maintain a strong credit rating, irrespective of their demographic. Jerry Howard, CEO of the National Association of Home Builders, said that while the policy may increase homeownership among the targeted group, it could decrease homeownership among the middle class.
The effort to get more low-income Americans and Americans of color into homeownership is essentially being subsidized by borrowers who have better credit scores and can contribute more to their down payment, said Michael Borodinsky, a vice president at Caliber Home Loans. However, former National Economic Council director Larry Kudlow said those government-sponsored enterprises (GSEs) have never penalized people who do not need government programs to help them own homes. The National Association of Realtors urged the FHFA to eliminate the fee increase on strong credit borrowers. The FHFA, however, called the recalibration of its pricing framework minimal and defended the changes.