Pennsylvanians with good credit will pay higher mortgage fees, while borrowers with bad credit will pay less under a new Biden administration rule. And the Delaware Valley’s congressional delegation is eerily silent on the matter.
Some Republicans and many responsible borrowers have lashed out against the policy, described by critics as income distribution applied to home ownership. Led by Pennsylvania Treasurer Stacy Garrity, the top finance officials from 27 states sent a letter to the Biden administration opposing the new rule.
“For decades, Americans have been told that they will be rewarded for saving their money and building a good credit score,” they wrote. “This policy turns that time-tested principle upside down. 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 letter concludes, “We urge you to take immediate action to end this unconscionable policy.”
“This new policy makes it more expensive for people with good credit to buy houses – and that’s absurd,” Garrity told DVJournal. “Americans who have built a good credit score and saved enough to make a strong down payment should not be penalized and forced to pay more on their mortgage every single month. I’m proud that so many of my colleagues from across the country – representing a majority of states – have united to urge the immediate elimination of this policy.”
In Harrisburg, state Sens. Devlin Robinson (R-Allegheny) and Kristin Phillips-Hill (R-York) are seeking support from their colleagues for a resolution calling on the Biden administration and the Federal Housing Finance Agency (FHFA) to rescind a policy.
“Punishing hard-working Pennsylvanians who have good credit and are smart with their finances is simply wrong,” Robinson said. “I’m hopeful the administration and FHFA will quickly realize and rescind this harmful policy, and I’m glad so many of my Senate colleagues and constituents share this sentiment.”
“It is illogical what this policy accomplishes. You play by the rules and do things the right way, but you get penalized for it,” Phillips-Hill said. “Increased home ownership across our state would be ideal. However, this is another failed policy that dodges real problems, like how will we reduce inflation and bring down our sky-high interest rates.”
Members of Congress who oppose the rule have filed at least three bills to reverse the policy, and co-sponsors range from conservative Republicans like Rep. Andy Biggs (R-Ariz.) to moderates like New York’s Rep. Patrick Lawler.
“Whether it’s student loan forgiveness or their mortgage rule, through the power of the pen, Biden and his executive agencies are attempting to bypass Congress and fundamentally change how our country operates,” said lead sponsor Rep. Stephanie Bice (R-Okla.) “We should not punish individuals who have made sound financial decisions or have the government incentivize lowering credit scores.”
However, no member of the DelVal congressional delegation, including Rep. Brian Fitzpatrick, are on board. And none of them, including Democratic Reps. Madeleine Dean, Mary Gay Scanlon, and Chrissy Houlahan—would respond to requests for comment.
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 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.
Defenders of the new Biden policy shrug off the complaints, arguing that the fee changes are modest and stretched out over time. And Biden’s FHFA Director Sandra L. Thompson insisted that no subsidy is involved. Instead, it is just an update on pricing for the revenue the agency uses “to compensate [Freddie Mac and Fannie Mae] for guaranteeing borrowers’ mortgage payments, which in turn attracts investors across the globe to provide liquidity for the U.S. mortgage market and, ultimately, reduces interest rates for homeowners.”
Bruce Elmslie, chair of the University of New Hampshire economics department, said the policy “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.”
Even former Obama FHA Commissioner David Stevens told Fox Business he thinks it’s a mistake. “We can do better programs to help more minorities get into homeownership. This is not the way to do it.”